Few shares are owned by the management team- only 12% of all outstanding shares.

Question

Few shares are owned by the management team- only 12% of all outstanding shares. Approximately 20% of the firms shares are in treasury, not because of an under-subscription, but because the firm purchased shares for the last two years in a buyback. As the CFO of the firm, management turns to your leadership on strategic financial issues. Specifically, 1) what should the firm do about dividend policy- be specific, and 2) what can the firm do long-term to protect the organization from corporate raiders?

Explanation / Answer

Hi, Its my personal opinion. Please check. a) The company can follow a no dividend policy. Dividends once declared and paid may establish a permanent liability for the company as shareholders start expecting dividends at the end of every accounting year. Further, the company may require money to buy back its shares from the market which in turn would provide shareholders an opportunity to sell their shares at a market premium. b) Since the company will follow a no dividend policy, it will have more cash which in turn can make it more attractive for hostile takeovers. The company should continue to invest money in buy back of its shares at regular intervals to protect the organization from corporate raiders. Thanks.

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