The corporation has been wildly successful, in this, the third year of operation

Question

The corporation has been wildly successful, in this, the third year of operation. While operating in the social media advertising arena can be risky, the corporation has been able through strategic alliances and timely hires, to stay ahead of the profit curve. While the stock price continues to escalate since IPO, some shareholders grow weary of no dividends. A dividend would allow the firm to finally be listed on the NYSE, opening more capital potential to the firm. As is true with any technology firm, there are corporate raiders lurking hoping that management slips, so the firm can be swallowed up. 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

1) Regarding the dividend policy the company should announce a cash dividend which helps to gain investors confidence and will attract more investors to buy stock of the company .

2) To protect the organization from corporate raiders the company should increase its current shareholding from 12% to more than 50 % . The shareholding can be increased by buying back shares and also promoting employee share ownership that acts as a mechanism to protect the organization from corporate raiders.

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