10 pages essay without cover page on the interrelationship between some to topics that I’ll provide. It should be double-spaced. Use the APA guidelines the citations
Japan Case
The GDP have been growing slowly lately. After world war Japan has been one of the fast growing countries and about 87, 89 the bubble blast and the housing prices dropped drastically and the stock prices also dropped and assets prices and equity prices dropped as well. They have not really recovered until now. Japan became an old country they have been growing older with a little economic growth for a long time period. Carriage rate Borrowing money in zero in Japan and convert the money into Australian dollars and invest it in a lot higher rate 4% or 5%. The prime minister started to make some changes by having a plan. First, to try to use monetary policy keeping the interest within zero or below zero. Second, fiscal policy (spending more money) spending more money on the economy in order to improve it. Third, a better corporate governance in Japanese companies better transparency lowering the risk and restore confidant in investing in companies. It will help improving productivity because lower risk will help in that. Which means a result of higher profit and more entrepreneurships and a better capital allocation. An increase in value of the private company will result in a growth economy. In my opinion, a good corporate governance is a reason for less risk and more profit and it is part of the factors that helps in the improvement but it’s not going to be enough without other factors such as external factors, opportunities and government restrictions. Good corporate governance does not necessary mean a better holding cash.
Fanuc Corporation
The stock price jumped 13%. They are trying to make profit gain money. There is a time period where the managers said if you don’t like it just sell our stock. Investors can view this as a negative thing. They are not spending money and they are being secretive and not talking with people. They are not being a good company index. The company needed a better Corporate governance ( more transparency). The company said that they are willing to pay taxes. Reducing the tax bill is going to be better for the company. By increasing the amount of debt a shield of taxes will. By making the changes and making investment more in the future. They are not using any debt and if they used more debt they will unlock more value. All this stuff will help creating more value for the company. My recommendation for the CEO to do is change the capital structure by taking more debt and pay our greater dividends, release the cash and make more investments, the corporate governance such as more transparency, they also need to change as well. Good short term decision will have a good impact on the long term as well.
Cargill Case
Cargill is a big agricultural food company. It is a private company controlled by the family who have a class A in the company and they survived for generations until the company ended up selling to Fox news. The managing CEO was independent and was not part of the family and what is really unique is that most of the board of directors were independent. Margaret Cargill received half of her fathers’ stake in the company and she passed away never married no kids so she set up a foundation to receive her share the foundation received her stakes in the company. The foundation wanted to sell the stock because they needed cash to whatever the foundation was founded to do. Also, for diversification reason. This was a problem for Cargill because by going public you create the market price and you will not have to estimate what are the stock of the company really worth instead you will have an actual amount of money that people are willing to pay for the stock. This creates value and create liquidity and with greater liquidity comes less risk. For the board it’s more convenient to stay private because they will have to compliance with the rules. Also, they will need conspiracy, filing public reports and this can be kind of complex. Companies doesn’t want to hire accountant and lawyer to do that. Most of the family even was not in favor of it because keeping the company private they own most of the stock and they are controlling the management but if the company goes public and they will be owning less than 51% so they will lose control and the majority of the family wants to keep control. Also, they want to make sure because of the family name legacy they want it to operating in a good way and staying within the family. The solutions are they can go public or try to raise the cash to buy back her share of course this will bring up a question of what is the real value of those shares. They transferred it into Mosaaic’s interest. They converted 40% of the A class shares to class B shares common shares and in order to be tax free they ended up having 64% of the voting the ownership went down. They lost a lot of ownership and they ended up changing the structure. The aspect of corporate governance here is managing the relationship between owners and management.
Swedish Match
Swedish Match is a company that makes Tabaco products. The company use almost no debt and they adopted this policy because the company has a history it almost went bankrupt and the reason for that was the amount of leverage it was using caused the company to suffer a financial distress. Therefore, they started having a policy of not using any debt. Adopting more debt policy is good because of the tax shield effect, discipline, hedging some of the cash flows and monitoring. It is bad because it reduce financial flexibility, FX risk and bankruptcy. You are using the free cash flow by committing to pay it back. Calculating the value of the tax shield will help determining the action. Racialization is selling debt taking the cash from that debt and buying equity. It’s not easy to find the value of the debt that the company should have. The price of equity change announcement date is a factor that could affect this change. It always happen immediately and it is efficient. The announcement is made that they are going to recapitalize the price will go up. They sell the debt and the cash rises by the amount of debt so they spend this cash to repurchase the shares. The debt increase and the equity is less the leverage ratio increase. In my opinion each company should try and find the best balance so they have the capital structure for example the company here could use the cash for other investments to gain more instead of the purchase that the company made.
Asahi India Glass
It’s an Indian manufacturing of glass. They had a good standing, so they starting giving a huge amount of dividends, and then the economic crisis occurs, and they didn’t have enough financial slack to pay. In this case, the issue is that there is too much leverage they are using too much debt. The reason for that is the fact the cash flow is taking away. A lot of the debt was in form of currency, and the Rube was deprecating so they ended up paying more to the creditors. They were using debt because they were increasing their size by buying more assets (mergers or other things) and they didn’t use any equity. The reason for that is that they were not willing to sell or bring in new equity because it’s more expenses than debt and because if they can use a tax shield interest taxes is going to reduce the amount of tax here. They got a tax shield from using the interests. Also, they have the interest free loans, so they borrowed more. They used returns earning first to support equity need to support their financial needs their investments needs, and they are using debt for everything else. The difference between common equity and preference (preferred) share is that preferred share have a higher dividends but paid out after tax. Before you pay the common equity to have to pay all the preferred shares. The control goes to the common equity because they have the voting right. To overcome the issue the company should sell equity. They will sell common equity. Increasing the amount of equity or they could sell preferred shares. In my opinion, the company did a deleveraging but it was not fast enough.
Apple case
In this case, Apple faces some issues such as the fact that Apple holds a lot of cash. This cash is being held oversees. Apple is the world largest tax payers. The stocks are doing really good. As it went over 600 a share, there is a limit, so they had to sell a lot of their winner stocks. At the time that Steve Jobs came back to Apple, he stopped the payments of dividends. Until he passed away, he refused to pay dividends, and his reason was that he wants the financial flexibility. Besides cutting the dividends, they invented the IPad, and the iTunes store was connected to allow users to buy music and games. Also, they came up with touchscreen with a lot of amazing features such as the fact that the phone device includes a lot of different things such as the calculator, the camera, music player, and other things. Now they have competition such as Samsung, LG. When Timothy Cook took over as a CEO people put pressure on him to use the cash for paying dividends. Then Apple started paying dividends. Even they starting paying dividends they are still holding a lot of cash. Holding too much cash will cause a lower return. Most of Apple board members have been members for almost 10 years, In my opinion, this is good because they have a full idea about the history and they are more capable of applying long-term plans, but at the same time they could be not doing their jobs as good as when the board is changing regularly. They have a good understanding of the business. They are more of consumers product company than they are a tech company. The board structure in apple is all outsiders of the company except for Timothy Cook, and this is a good thing, and they are all elected annually. My recommendation is that it’s better for them to have more turnover and some concerns about the high tech experience could be overcome by working in this area. The dividends payout is small the company is holding a lot of cash in hand, so most of them are not having it for the dividends. Growth vs. value of stock. There are companies that you expect that will have great growth, so those companies are not going to pay high dividends instead they are going to reinvest those revenues. On the other hand, you are having the companies that give dividends. So dividends policy is what makes the different. It is hard to say what financial managers are looking for. There are a lot of people holding Apples’ stocks. It is bad because it’s harder to make a change, but again they only hold a small amount of the stocks. Timothy Cook and the others are saying that they don’t want to go to the market for cash, so they are keeping cash to face the future needs. If they borrowed money and repurchase the stocks they will have an increase in debt and the leverage increases. Most high tech companies don’t have too much debt because they don’t have the assets in place they depend on human capital so because they don’t have the collateral they don’t have much room for debt. Therefore, it’s bad for Apple to increase the leverage. In my opinion, I think they should give the cash they have as dividends and withdraw the proposal for repurchasing the shares. They need to return the money, and they can afford to pay their employees more.
Newfield Exploration
It is a gas company they started with a strategy. Back in the mid of 2000, they changed the strategy that they expanded their natural gas productions because the prices were going up and this was supposed to be is a profitable segment. They weren’t correct because of the oil demand rise and the market burst, and prices started to decline the financial crises in 2008, so the demand increases rapidly. You get better productivity, and you have much power than the past. The natural gas goes up because of the concerns of the carbons in the atmosphere. The change is in the market place, not just the regulations. The supply was increasing so this didn’t make a good bet on the natural gas. Therefore, in the company, the financial leverage was increasing the risk. The revenues were increasing, but the net income was decreasing. They realized the mistake with natural gas, and they changed the strategy they started to move to liquid natural gas segment and sell out the other natural gas. They started to cut the dividends and investors don’t like that. The reason for cutting the dividends was that there more leverage than before there more risk than before and they don’t have enough cash to pay the dividends as in the past. The market reaction to the fact that they were selling assets (natural gas) was positive because they are not relevant. Something that has lower returns and getting rid of it is going to be beneficial to the company. In Newfield, it’s better to get rid of the assets. They sold the assets outright, and this is the better for the company. The company plan in order to make it right to the investors is that they made an exchange offer they made announcements cut dividends because they didn’t have the cash flow and as an investor, the exchange offer will be good only if they have the equivalent amount of the dividends they receive before. The ratio of the dividends on the preferred stock and the dividends on the common stock will be equivalent to each other otherwise it will be worse than before. The company announced the divest of shares, cutting the dividends and the exchange offer the reaction to this is positive because you are getting rid of the unneeded assets but to the cut of dividends it’s a negative reaction and for the exchange offer the reaction will depend on the amount of cash flow that they are going to receive is it the same as what they received as dividends in the past.
IBM Case
They gave the road maps. IBM has been around for more than 100 years, They starting making computers and selling them. They had the IBM compatibles. Later they realized that all the PC’s are commodities, so they sold it to the other company (Lenovo) and became a service software company. The issue in the case is looking at the road maps they provided 2010-2015 one of them was earnings per share guidance which telling the investments community we expect earnings per share to be a specific amount in 2010 with a five years plan. This is a bad idea a lot of executives hate to be given guidance. Most companies give guidance in each quarter or each year (short-term). The benefit of IBM looking long-term is that the company is going to turn things around. Cash flow from operations is staple. Investing a lot of money in acquiring other companies. The have been paying their debt, so the leverage ratio is going down. They are having more dividends. By announcing the road map, the managers are trying to be more transparent. The manager is trying to argue that the company growing is going to be higher, there will be more dividends, and the company is stock is now undervalued. Another reason is that it provides guideline for change strategies on the long-term. They are investing less than before part of it is because they are acquiring more. In my opinion, I think they It depends on which type of company they are if the company is a hardware company they will have assets that allow them to have debt and increase their leverage but for the software company they are investing more in people with have no ability to do debt because the risk will be higher. Here they are not investing enough to keep the company growing, but they are paying good dividends
Classic case
It is a private company that is selling hardware, and they decided to have a level production schedule (the same amount produce each mount of the year) The benefit of that to the company is it’s a lot easier to plan, and it’s easier to forecast the cost (stable cost) the employees will like it because they are going to be working on a stable amount of time during the year they will not have uncertainty. The cost of having level production policy is they have a seasonal sales so they have an inventory that they will not sell it until it’s the time for that. A huge increase in the inventory so they will have a buildup in the inventory and a buildup in the account receivable. During this time the cash balance is going to decrease. They will have to pay the suppliers, the utility bills. This occurred during the rescission. For this company, the sales during the recession decrease. The sales went down which means the inventory holding cost increased. They had a cash problem that they did not have enough cash on hand. The company is looking at the budget and compare it to the situation they have a decline in net income. They have a problem the inventory was increasing over the seven months too high and that net income is less than what they have forecast their cash flow is less than what they have forecast, and the cash balance is less than what they have forecast. The possible solution is that they could decrease the price or they could cut production. In my opinion, they need to have less raw material inventory on hand. In order to determine the wright thing to do they need to understand the market situation because sometimes it’s better to have a higher price because it reflects a higher quality so before they determine what are they going to do with the price, they should understand the market. They could renegotiate the terms with lenders to stretch out the payment, and the benefit of that will be that they will eliminate some of the cash outflows so they can improve the cash balance that they have. I think that the lenders could go along with the negotiations if the company have some factors such as credit quality and the risk in default is law, paying interests. You need to have a plan in place showing how the company is going to overcome the current problem that they are facing showing that this is a temporary situation that the company is going to overcome and the sales are going to increase again. The bank may turn the company down if the banks don’t have the money themselves. The company could try raising equity capital and cutting the dividends. Using long-term debt will may take longer to negotiate that. I recommend that the company cut inventory by lowering production and renegotiate with the bankers. I feel that the management didn’t do a good job forecasting.
JC Penny Case
It is a department store. In this case, JC Penny is classified as a middle tier, and overall most of the middle tier retailer have been squeezed and the trade is changing against them. Some of them declared bankruptcy. The CEO and he wanted to change the policy from high prices into huge sales each week after week, and he found out that the sales increases when there is a discount so he wanted to lower the prices and lower the costs but this didn’t work. They had fewer people to answer questions on the floor, and instead of having cashier, they have iPad to scan and pay by themselves. The costumers didn’t like the change. The problems are that they after the changes they had a huge liquidity problem the cash decreased and did they have enough to pay the liabilities. In order to determine that you look at the cash balance and the payable balance and the inventory turnover and the amount of inventory on hand. The source of using the funds in anything to increase the cash, so it’s going to be decreasing assets increasing liabilities and equity account or the opposite, increasing assets decreasing liabilities and equity account. The profit declining they have less cash receivable, so that is a use of cash. It’s a source of cash increasing. Decreasing the inventory and they are paying off the debt. They took in some stock. In my opinion, sources are less than uses so the cash balance is decreasing and that is not a good amount of cash to keep on hand and in planning the expectations was that the company would have access funds to invest in short-term or they will need to raise more cash. They had a cash shortfall. It was a mix of bad planning and bad luck, and they didn’t really work with the changes that they have. The company could have a better CEO. Also, they could manage better because here there is an obvious corporate governance problem. They didn’t execute the plan correctly. I think that the company needs to raise the cash they should raise it using equity because if they use debt, they could not be able to pay back. Operationally the company could cut cost, and close stores try to remove some of the inventory expand the time period to save some cash and go back to the old strategy. The should have an equity offering.
Valspar and Sherman Williams
Valspar and Sherman Williams are manufacture business. Sherman Williams sells in their own stores, and Valspar sells in retail stores such as (home depot). This business is very competitive. The motivation for a CEO to call a larger company and ask them for to acquire his company is the fact that he has a fiduciary duty to act on behalf of the shareholders for their benefit. The benefit from that is that by the two companies combined they will have a greater economic scale. By combining them together, they will cut down the operation costs. Also, being acquired by a larger company is way better than being acquired by a small company. They will be better being acquired to get the shareholders better price than suffering all the losses from paying the premium to acquire another company. He was trying to sell the company instead of preventing the acquisition he is going to retire having a golden parachute ( a lot of benefits). Sherman Williams has been growing by acquiring other companies. They are willing to acquire other companies to have a higher growth. The initial offer (the premium) that Sherman Williams is paying $ 74.61 (the price of share before acquisition 106 82.04 = 2.6 billion dollar premium. The regulators approved this merger, and they have to make some other changes in order to get the approval. The reason that the regulators could have to approve was that if this merger has market operational efficiency, this will cut the costs resulting in the prices going down. It seems like an easy business highly competitive market. They end up paying $130 per share. In my opinion, this was a good plan, and it has a positive impact it Significantly expands position in Asia-Pacific and EMEA, Extends capability set into packaging and coil with leadership positions. Also, provides scale platform to enable growth in Asia-Pacific. In addition, expanded the geographic footprint and benefit from cost reduction and synergies. Furthermore, utilizes balance sheet and low cost of capital to enhance top line and earnings growth profile and meaningfully enhanced cash flow generation profile.
TSX group and the Montreal Exchange Case
The 1999 agreement with the Canadian was that would be separation for different exchanges. This non- compete clause was approved by regulators. In the market a lot of exchanges was driven by technology and globalization. With trading securities in became more electronic. What you used to have with the exchanges is having brokers with clients all over the world calling to exchange and traders on the floor. There is a limit on how much you can trade. Ever since the internet opened up everything changed the trade became online and online brokers became available. They have electronic platform and available to be trading. Also, it has a huge monitor to track the movement in the stock exchange. NASDAQ start to have competition in the trading online. Other programs also held books for who’s trading and how much are they trading who wants to buy and who wants to sell and match those together. Globalization affected the industry companies are traded all over the world so there is greater international competition as well as domestic competition. The older stock market is Philadelphia exchange. Internationally the Euro market got formed there is a Paris exchange and London futures exchange also the London stock exchange. Island, Denmark markets joined together. There is a lot of consolidations going on domestically and internationally. This leave the Toronto stock exchange really small compared to the other stock exchanges facing increase in competition from THE American market. . The German plans imply the strategic rationale for TSX to merge with MX is that with the globalization in the marketplace having two separate a derivatives exchange and a cash equity exchange to have two different markets for the securities. They are smaller and between the two exchanges equity and derivatives exchange markets are complement to one another because if you are trying to hedge you are going to use the instrument in the Montreal exchange to reduce the risk . The synergies are having one information technology platform is better than having two serving different markets and saving millions of dollars. The major reason for having the exchange that they will provide their clients with information they have all the books and supply and demand and market data information and combining the both markets products information will increase the revenue. The ability for the clients to trade in both markets by using only one to do so resulting in a lower trading cost. Doing both commodities in equity market instead of two. The Toronto exchange needed this more because the Montreal exchange is in a better place the more the technology and market globalization the more it’s getting increase in revenues overall. The number of securities have been traded is more stable. Montreal exchange reluctant to merge because the premium was really noting so they didn’t gave them enough reason to do so. Montreal have other options. The difference between merger of equals and hostile takeover is the fact that one of them is friendly and the other is not. They have a fiduciary duty to consider all options and they need to try to get the best offer posable. If Montreal exchange didn’t agree on a friendly merger Toronto exchange could try a hustle takeover and the problem is that the good people their will try to leave and it will be much difficult and it will take longer and it will cause a distress for a better offer and there is a possibility that they could get a better offer from another such as Chicago. Therefore, they could end up losing for a competitor if they go for a takeover. In order to determine what the price is going to be they have the discount rate, valuation and comparable transactions. The two companies merged and agreed on the terms of the merger the percentage was 81% and 19%. In my opinion this was a merger that helped improving the growth and revenues and it also reduced the risk for the client doing the trades.