Offshoring

Multinational companies have continually engaged in the movement of head office address due to the variations in tax regulations of countries. Various laws have tried tackling the problem of transfer pricing but the variations in taxing regulation will always allow for loopholes where these Multinationals can build on and save huge taxing cuts which in turn maximises shareholder returns. Companies like Tesco who engage in offshoring have recorded huge savings of up to £125 million. This could therefore serve as a competitive advantage for Tesco thereby reducing overall cost and improving profits which ultimately maximises shareholder wealth. However, competition strategies makes it inevitable for competitors not to follow in footsteps of its competitors otherwise they will be outplayed causing bankruptcy e.t.c.

Issues of offshoring is no news to the governments of the developed economies but various reasons deters them from pursuing laws to prevent such acts. Personally, the ability of firms to save cost by taking advantage of loopholes in the taxing system seems erroneous but its advantage to companies is limitless therefore, countries with higher tax brackets such as UK and US will highly benefit from reduced tax as not only will investor remain in their countries but they will also attract foreign investors. 

JJB Cash Calls

JJB recently commenced talks with shareholders to raise finance of £31.5m desperately needed to service its business obligations for the next couple of months. The shareholders have now approved the cash call therefore  the business has announced an initial 630m shares available to public investors. The shares will be issued by way of placing shares i.e. issued to existing public institutional investors already in contact with JJBs' brokers.

This, in my opinion is JJBs' best shot at survival as most other methods of raising finance would not favour the company as much as this would. The major options available to JJB are loans, debentures or issueing bonds or shares. Out of all these methods, issuing shares is most suitable as it's nature of commitment to investor is less than the other methods. Loans, debentures and bonds all require regular interest payments to investors, this will pose a problem for JJB if it pursued such financing methods as it can't even meet it's interest obligations as it is due to several economic and performance issues.

Also, if these methods are pursued, it's almost certain that interest rates will be quite high due to the business poor performance. It's no news the kind of store closures JJB has announced and it's share price has fallen over 90%. The business is trying to claim it's second CVA (Company Voluntary Arrangement) -  This is a legal agreement with landlords that allow businesses slash their rent costs. Therefore, investors are quite doubtful as every investor is after earnings and not loss.

In conclusion, the £31.5m will only last the business until late March to April 2011, therefore it will be back looking for finance in the near future if nothing is done. The business has therefore announced huge cuts in it's business dealings and made it clear that it's moving towards sports wear specifically, without any diversification until further notice. I believe with the right cuts made and a good strategy forged ahead, JJB is bound to exit its downturn, as it has good advocates who are willing and believe they will make enough earnings on their investments.

Proposed Merger: NYSE Euronext with Deutshe Börse

During the week, a preposition was made to merge NYSE Euronext with Deutshe Borse. This merger is quite big in nature and involves major players in the stock market scene. This merger, if successful will be the worlds largest  trading powerhouse.

Surely, there are advantages and disadvantages to such mergers. Already, the merger has raised eyebrows within the US regulatory bodies. This is due to its nature of allowing Europe's biggest exchange group to take control of up to 60% of the company that runs the NYSE and its monopolistic possibilities.

Benefits of the merger will promote huge cost savings and advancement in the globalization of stock markets which will allow an increase in ease of trading internationally. Although, these advantages are recorded, there are still obstacles to overcome in concluding a merger of this nature. It's mainly an issue of control, as mentioned earlier, 60% of NYSE will be controlled by a European company which is quite unfavourable to the US authorities.

Personally, the merger is of great advantage as the world is moving towards globalization therefore it is not much of an issue if an European company runs 60% of NYSE but the monopolistic possibilities have to be checked and addressed. No doubt the merger will bring huge benefits but is it enough price to pay? i.e. giving the kind of power the organisation will hold within the industry. As much as the interests of customer are being considered, the competitive aspect should not be ignored. Lesley Ainsworth, competition partner with Hogan Lovells said it will come down to whether there is materially less choice and the power to increase fees.

Definitely in my opinion, cost will reduce by way of shared systems and so forth but it will be disastrous if fees then increase parallel to a reduction in cost. Before a consideration of this sort of merger, I believe the regulatory bodies have to check and understand the sort of power given to this organisation or even come up with some sort of agreement with the parties involved to understand how power will be apportioned and what sort of power or activities the parties involved are allowed to partake in.

These two markets operate a semi strong efficient market based on Fama’s model. With this kind of efficiency available within the two proposed merging firms, it will serve as a merit, as information will be readily available at real time from different countries which will further improve the smooth sailing of stock market dealings. Generally speaking, it’s a good move but efforts have to be put in place to understand the possible short comings and their solutions if there is any available.

Shareholder strength expressed in oust of F & C Asset Management Chairman.

An EGM (Extraordinary General Meeting) was held within F & C Asset Management where two of it's current directors where voted out of office by a seize of chairmanship bid by US investor Edward Bramson.

Mr Bramson criticised recent acquisitions made by F & C which suggests that he (Mr Bramson) has favourable future plans for the organisation hence the EGM and his victory over previous chairman Nick MacAndrew. This is obviously a movement instigated by the board but shareholders being the owners implemented the actual changes i.e. exercising the shareholder strength.

With the second largest shareholder of F & C, Eureko, showing allegiance to the the outgoing chairmans regime, a misunderstanding may occur if they decide to exercise their shareholder rights by selling their shares as oppose to intervening. This will cause a huge backdrop in share prices for F & C which will make it a lot harder to generate funds. Also, it leaves the organisation open to a threat of merger or even a takeover by other set of managers who would want to benefit from the price drop.

The likeliness of this sort is inevitable especially when Mr Bramson has never taken up a fund manager position and the Financial Service Authority has previously questioned the fund management of the newly appointed directors. Although Mr Bramson won the vote for chairman over Nick MacAndrew who was Eurekos' candidate, Mr Bramsons' argues that the acquisitions made in the previous administration has affected the performance of F & Cs' shares therefore with positive improvements in shareholder wealth, Eureko will be left with no option but to switch its' allegiance to Mr Bramson as it's no myth that all shareholders are after the enhancement and improvement of their investment.