Stakeholder influence

by Gordon on Monday 8th October, 2012

Shareholders are an important stakeholder group for any business.  Purchasing shares provides financial support for the company for which they expect a return. Their opinions and views can have a significant impact and need to be taken into account when making strategic decisions.

Reed Elsevier, the leading publisher and provider of professional research information, aims to respond to all stakeholder needs through reducing costs, improving efficiency and increasing revenues to enhance the dividends it pays to its shareholders.

On 12 September 2012, UK defence company BAE Systems and Franco-German group EADS announced they were in discussions over a possible merger.  The largest investor in BAE Systems, Invesco Perpetual which owns 13.3% of shares, has recently said it has ‘significant reservations’ over this planned merger.  (BBC, 8th October 2012)

Although BAE and EADS have presented the tie-up as a merger, one contentious issue is that EADS shareholders would end up with 60% of the new group and BAE shareholders the rest.

Invesco Perpetual said in a statement that it ‘does not understand the strategic logic’ of the deal.  Invesco said that it ‘believes the merger would materially jeopardise BAE’s unique and privileged position in the United States defence market’ and has been unable to identify any corresponding benefits to offset this.

Invesco said, ‘The merger ratio does not reflect BAE’s superior cash generation or the quality of its earnings stream derived from the length and nature of its customer contracts.  
Invesco went on to say, ‘Invesco is very concerned that the level of state shareholding in the combined group will heavily impair its commercial prospects – especially in the US – and result in governance arrangements driven more by political considerations than shareholder value creation.’

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