International Finance and Responsible Financial Management

Academic Essay – The creation of shareholder value – The Impact of the Global Covid-19 Pandemic on Corporate Finance.

(1,500 words excluding Blogs)

The following are extracts from the financial press:

Income investors wondering how fast their dividends might recover from the pandemic may not have to wait much longer for good news. The rate of decline in UK payouts fell in the three months to March to its lowest quarterly rate since Covid-19 first struck, according to Link Group, an investor services company. The headline figure — a 26.7 per cent drop — hardly looks reassuring. But the rate of decline has been shrinking quarter by quarter since the 48.2 per cent plunge in the dire days of April to June last year. Link forecasts increases from now on, predicting a 5.6 per cent rise in underlying dividends, excluding special payouts, over 2021. Over the 12 months to March, covering the period since the pandemic hit the UK, dividends dropped 41.6 per cent, as two-thirds of companies cancelled or reduced payouts. Investors altogether lost £44.8bn, Link said, with 30 per cent coming from oil groups. But even in tough conditions, there were some dividend winners. Food retailers raised payouts 22 per cent, led by Tesco. Consumer basics, headed by Unilever and Reckitt Benckiser, also posted dividend increases over April 2020 to March 2021. “The outlook is brightening,” Link said. “Banking dividends are returning, though at low levels and there are positive signs from miners, insurance and media companies.” David Smith, fund manager of Henderson High Income Trust, agreed. “While the last year has been painful for income investors, we can now look forward to aggregate dividends growing from their lowered base,” he said.

(FT.com ‘Glimmer of hope in U.K Dividend drought’, April 28th 2021)

Panasonic is paying $7.1bn to acquire US supply chain software company Blue Yonder in a deal that highlights the changing global business environment of the pandemic and a resurgence of overseas acquisitions by Japanese companies. Under the agreement announced on Friday, Panasonic will build on the 20 per cent stake it acquired in Blue Yonder last year. It will buy the remainder of the company from private equity groups Blackstone and New Mountain Capital in a deal that, including debt, values the target at $8.5bn. The US group’s enterprise value has jumped from $5.5bn a year ago as supply chain disruptions during the pandemic boosted demand for software that helps companies manage logistics and shipping. Earlier this month, Blue Yonder revealed that it was preparing to go public after filing paperwork with the Securities and Exchange Commission. For Panasonic, the deal will allow it to combine Blue Yonder’s software with its traditional business of selling hardware such as security cameras. It will be the group’s biggest overseas acquisition and the first under its new chief executive Yuki Kusumi, who took up the post this month… The pandemic, which limited international travel and made hands-on due diligence more difficult, caused a sharp slowdown in outbound deals in 2020. But in the first quarter of 2021, said Bank of America analysts in a note this week, Japan’s overseas dealmaking staged a surprise resurgence. Companies collectively undertook $29bn in cross border M&A, the highest January to March figure of recent years, involving a near-record high of 110 deals.

(FT.com Panasonic to pay $7.1bn for supply chain software Blue Yonder, April 23rd 2021)

Requirement
You are, in an academic essay format (70% of marks), required to answer one of the following two tasks.

Task 1: You are to critically evaluate the literature on Dividends and Dividend Policy and using examples from the financial press, assess the impact of the Covid-19 pandemic on the dividend decision of companies throughout the different phases of the pandemic. You are to reach a conclusion as to whether dividend policy has a substantive impact in the creation or destruction of shareholder wealth.

Task 2: You are to come to conclusion, supported by the academic literature, as to the ability of managers to value companies in the context of the global Covid-19 pandemic and to create shareholder value by engaging in merger and acquisition activity. You should make reference to current examples of merger and acquisition activity from the financial press.

Guidance Notes:

You are expected to use strong and reputable business news sources such as the Financial Times and Bloomberg to read around and develop your understanding of the cases you use.
You may use the companies mentioned in the above extracts as a starting point, but you should widen your research to include other examples to support your arguments. You are not limited to the U.K for examples.
Your answers should focus specifically on the impact of the covid-19 pandemic on companies. This theme runs through the assessment. Therefore you should use the academic literature to support your arguments but should not expect to gain information about the global pandemic from the literature. You are strongly encouraged to use real-world examples from different phases of the pandemic.

Answer

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