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ESSAY OF THE WEEK |
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Question
The following appeared in a national business magazine:
John Bigbux has sold all of his shares in Conglomo Corporation, apparently after failing to persuade Conglomo to enter into a partnership with the Megalo Company. Bigbux had owned a 15-percent share in the company and was Conglomo's single largest shareholder. Bigbux proposed the partnership at Conglomo's annual shareholder's meeting in September. Bigbux could not be reached for comment.
Discuss how well reasoned you find this argument. In your discussion, be sure to analyze the line of reasoning and the use of evidence in the argument.
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| Shabeer: 12/26/2008 |
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The discussion is about the shares sold by Mr.Bigbux. Firstly it can be concluded that by selling the shares, Bigbux has taken a wrong move. Just because his suggestion was not entertained in the meeting, taking a big step to sell his shares may not be feasible. The company has several shareholders & directors who take decisions about the company's wellbeing. If the proposed plan was declined, there may be a rigid reason for the same. Instead of selling the sahres, Bigbux should have waited for the right time to propose a plan which may have attractred the ears of committee. While proposing the plan, Bigbux should have given rigid reasons why the company should go aheaad & take a step for the merger. If the board disagrees for the same, the reason should be sought & later the decision should have been taken. |
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| Cyril Asare: 3/24/2009 |
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John Bigbux being the single highest shareholder has a lot of interest in the company and will want an increase of value for his shares. Merging with Conglomo Corporation will make a larger corporation which will lead to economies of scale, certain cost will be eradicated or reduced, market share will increase due to the size of the two corporations. The new company will earn more revenue and the value of the shares of the company will increase.
The other shareholders probably din not agree to the merger because of the risk in share dilution they will suffer if the merger took place.
John Bigbux sold his share in proptest |
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Reference Essay |
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Since John Bigbux was unavailable for comment, it's only speculation that he sold his shares in Conglomo Corporation because he could not persuade the company to enter into a partnership with Megalo. There are a number of other explanations for why Bigbux might have sold his shares.
Bigbux could have seen a better investment opportunity in a different company; or perhaps Bigbux thought the price of Conglomo was good enough to sell at a decent profit. Perhaps, as the largest shareholder of Conglomo, Bigbux was privy to information that indicated that his investment in Conglomo stock was in jeopardy. Bigbux could have come to the conclusion that his purchase of Conglomo was an error; or that its stock price would not go significantly higher. Perhaps Conglomo announced that it was not going to pay dividends any longer, and Bigbux only wants to hold dividend-paying stocks. The conclusion reached by the national business magazine would have been stronger if it had contained a quote from Bigbux, or if Bigbux had indicated at the shareholders' meeting that he would sell all of his shares in the company if it did not enter into a deal with Megalo.
The article also implies that Bigbux had a strong interest in seeing a partnership between Conglomo and Megalo, however it is possible that Bigbux had no serious interest in seeing such a merger. At the time of the shareholders' meeting, Bigbux could have had some ownership interest in Megalo, and a partnership between Conglomo and Megalo may have benefited Bigbux, without producing substantial benefit for either company.
In any case, the passage does not provide enough information to conclude that Bigbux sold his shares in Conglomo because partnership plans didn't materialize as Bigbux had hoped.
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