Financial Management: Dividend Policy and Mergers & Acquisitions

FINANCIAL
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
1. DIVIDEND POLICY..................................................................................................................4
1.1 The size of the annual dividend to return to its shareholders................................................4
1.2 Practical issues that need to be considered when deciding on the size of the dividend
payment........................................................................................................................................6
1.3 Effect of options on the wealth of shareholder......................................................................7
1.4 Critically discuss how company’s decision will be influenced by opportunity to invest
£70m in a project.........................................................................................................................9
2. MERGERS AND TAKEOVERS..............................................................................................11
2.1 Price / earnings ratio:...........................................................................................................11
2.2 Dividend valuation method..................................................................................................11
2.3 Discounted cash flow method..............................................................................................13
2.4 Problems associated with using the valuation techniques...................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
The company is a joint organization that starts its work by receiving capital from its members.
Members invest capital in the company because they continue to receive a reasonable income
from it. If the companies cannot even pay dividends to the investors as much as they can
normally get easily in the money market, then it will be impossible to arrange additional capital
for such companies, as well as the capital for new companies it will also become very difficult to
raise. Mergers and acquisitions, amalgamations, takeovers, spin-offs, leveraged buy-outs, buy-
and-sell shares, capital restructuring, sale of business units and assets, etc. are the most popular
means of corporate restructuring or business combination. Ownership refers to changes in
ownership, business mix, asset mix and alliances with the aim of increasing the value of
shareholders. This project report is based on these two concepts dividend policy and mergers and
acquisitions; for better understanding different scenarios have been studied to get impact analysis
of each strategy on shareholders.
Two companies; Squeezeco and Aztec covers both dividend policy and mergers & acquisition
concepts; where dividend strategy consists three alternatives and the best option chosen method
is discussed to support company. On the other hand; the takeover of Trojan will evaluate main
issues face by Aztec while concluding value of takeover through implementing various tools like
price earnings ratio, dividend valuation method and application of discounted cash flow
technique to support management decision making process.