You are covering a story concerning a local company about which there have been rumours relating to a possible hostile take-over bid. On a day when the FT 100 Share Index fell 250 points, the value of the company's ordinary shares increased significantly.
There have been reports that the Office of Fair Trading might refer any take-over to the Competition Commission.
(a)Explain what is meant by the terms:
FT 100 Share Index (stating also why it is important): the Financial Times Stock Exchange 100 Share Index (to use its full title) is the most famous of a number of 'indices', or lists, of major companies listed on the London Stock Exchange.
It lists the hundred highest valued companies at any one time, in order of their share value.
Ordinary shares: They are known as equity shares and they are the most common form of share in the UK.
An ordinary share gives the right to its owner to share in the profits of the company (dividends) and to vote at general meetings of the company.
Ordinary shares are the riskiest form of investment in a company since there may be no dividends paid and the market value of shares might fall after they have been bought.
The Ryanair share price fell so dramatically in mid-January 2004 because the company announced that its profits for the current financial year would probably be worse than they had previously expected.
Competition Commission: formerly the 'Monopolies and Mergers Commission' (MMC), this regulatory quango vets prospective company mergers and takeovers to ensure that they are not likely to have the effect of compromising free market competition.
Office of Fair Trading: a national regulatory quango established to ensure that free and fair competition operates in a given market for the benefit of the consumer on a day-to-day basis.
The OFT investigates complaints about restrictive practices, cartels, and other anti-competitive behaviour.
Plc: Plc stands for Public limited company, these companies have at least two shareholders and may offer shares to the public. Their owners will 'float' them and they will be listed on the London Stock Exchange.
They must have issued shares to the value of £50,000 before being allowed to trade. Larger plcs are often referred to as blue chip companies, and include household names such as BP and Marks and Spencer.
Hostile takeover: When a company takes over another company against its will, it is a hostile takeover.
A hostile takeover is an acquisition in which the company being purchased doesn't want to be purchased, or doesn't want to be purchased by the particular buyer that is making a bid. It is just like how can someone buy something that is not for sale?
Hostile takeovers only work with publicly traded companies. That is, they have issued stock that can be bought and sold on public stock markets.
The two primary methods of conducting a hostile takeover are the tender offer and the proxy fight.
A tender offer is a public bid for a large chunk of the target's stock at a fixed price, usually higher than the current market value of the stock.
In a proxy fight, the buyer need to convince the shareholders to vote out current management or the current board of directors in favour of a team that will approve the takeover.
While companies fight tooth and nail to prevent hostile takeovers, it isn't always clear why they're fighting. Because the acquiring company pays for stocks at a premium price, shareholders usually see an immediate benefit when their company is the target of an acquisition.
Some analysts feel that hostile takeovers have an overall harmful effect on the economy, in part because they often fail.
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