Question

Write 2 page paper in which you respond to the question below and provide true/ false replies for all questions (with supporting rationale) and additional requested information, with references.

1c. True/ False - An acquirer should be willing to pay a higher control premium for a well managed company than a poorly managed one

Why is control considered so valuable? Identify a company which paid-up for a controlling interest and assess why it was done?

Answer 1

True, an acquirer should be willing to pay a higher control premium for a well-managed company than a poorly managed one because investment in a well-managed company is a safe investment and would limited risk. Acquirer can give a new direction to the company as per his goal/objective.

Why Control considered so valuable?

In connection to the above sentence I add to below points which prove control considered so valuable:

1. Selection of management and team:

If acquirer have control stake in the company, then only he can select his management and team which may be expert in business or good in management.

2. Listing and merging of the company:

Control rights also give accessibility to go in public, if company is not listed. He can also merge the company with some good company and make good money.

3. Control on the assets:

Control on company also helps the acquirer to take the call on company’s assets. He can mortgage, sell and pledge company’s assets if he has control rights.

4. Decision on company’s operations and products:

Control on company also give full right to modify the operation pattern and product of the company.

5. Declare dividend and bonus shares:

Yes control rights also allows acquirer to declare dividend to shareholders and he can also issue bonus shares.

6. Increasing the market share:

By acquiring the control rights in the peer company it helps you to increase your group market share in the particular segment.

In June 2008 Tata Motors Ltd. , India acquired British based luxury car manufacturer Jaguar Cars Ltd. and Land Rover for 2.3 billion US dollar. On 1 January 2013 the operations of Jaguar Cars Limited and Land Rover were merged as Jaguar Land Rover Limited and the parent was renamed to Jaguar Land Rover Automotive PLC.

It was done to increase the presence of Tata Motors Ltd. to worldwide platform and also want to add luxury cars in the portfolio of Indian car manufacture and after that Tata increase the sales JLR by making changes in the manufacturing and design of the product.