Question 1:

(a) Discuss the advantages and disadvantages of a full listing by a company on the Stock Exchange.

(b) Suggest reasons why directors might want to ‘take a company private'.

Question 2:

Many decisions in financial management are taken in a framework of conflicting stakeholder viewpoints. Identify the stakeholders and their interests in the following situations:

(a) Eurotunnel, the operator of the Channel Tunnel, was set up with a high level of financial gearing. This increased further as construction costs escalated and were paid for by additional bank borrowing. Eurotunnel has changed its capital structure to reduce its gearing and financial risk by exchanging bank debt for equity in a series of capital reorganizations, starting in 1997 and continuing up to 2007, when the UK company Eurotunnel PLC and the French company Eurotunnel SA were acquired by a single French company GET SA.

(b) GUS, a retailing conglomerate, has ‘spun off' businesses by selling divisions and setting them up as separate companies. Starting in 2002, it first disposed of its traditional mail order catalogue businesses to concentrate on its specialist retailing activities and retailing-related business services. In 2005 and 2006, it set up Burberry, its up-market clothing retailer, and Experian, its credit rating and business research operation, as separate quoted companies, leaving a newly renamed Home Retail to run its other retailing activities.

(c) Manufacturers in Europe and the US have switched production to developing countries with lower labor costs, most recently and most importantly China. The large manufacturing based Chinese trade surplus resulting from this has led to China becoming a dominant holder of US government bonds.