MGB305 | Accounting | Financial Analysis of Udenna Corporation

1. The assessment considers the case of Udenna group of companies which is holding company and has numerous corporation as its subsidiary. The business has recently engaged in a share swap agreement with ISM Corporation (Iacoviello, 2015). Net worth of a business is computed considering the assets and liabilities of the business and in general terms it is referred as shareholder’s equity of the business. The computation of the net worth of the business are:

The computation of net worth of Udenna Corporation is shown in the above table and the same is shown to be PHP 30,451,716,625 for the year 2017.

2. The business of CLC/Udenna/China Telecommunication has recently won the best telecommunication in Philippines. CLC telecommunication is one of the subsidiaries of Udenna Corporation and the impact would be positive on the business of Udenna Corporation. In a short-term situation, the market value of the shares would be increasing due to the hype which the corporation would get from winning the title of best telecommunication. In addition to this, in short term situation, the overall investment in the business would also increase significantly. In the long-term situation, the share price would further enhance and the business would be acquiring big investors due to reputation of the business. In the short run situation, the market value of the shares would enhance as the trading in the shares of the business would also increase significantly. The business would be affected in a positive manner in both short run and long run situation.

3. As per the case which is provided, Mislatel consortium is trying to get the slot of third major player in telco business. The Mislatel consortium is a joint collaboration of Udenna Corporation and China Telecommunication corporation. The Department of Information and Communications Technology (DICT) had disqualified the Mislatel Corporation for lack proper documentation in the business. The impact on the business can be judged on the basis of the market conditions which is quite favorable towards the business. The view point of DICT is that the department did not show any partiality and was firm in its decisions. The overall short-term impact would be that there might be slight fall in the demand and the sales might fall. In addition to this, the share price of the business is also anticipated to fall slightly. However, in the long run, the situation is anticipated to stabilize.

The business of Mislatel Consortium is not listed in the PSEI which can affect the business and therefore the management of the business needs to immediately enlist the corporation. The business must enlist in the stock exchange for the purpose of taking advantages of trading in securities in public. The company can effectively meet the funds requirements of the business from issues of shares in the market. In addition to this, listing of the business would promote the business effectively and contribute to the reputation of the business and attract more potential investors for the purpose of making investments in the shares of the business.

4a. As per the case which is provided in the assessment, the business of ISM Communications and Udenna Corporation has planned to undertake a share swap between the two business. The business of ISM would be issuing 24,058,105,850 ISM common shares to the shareholders of Udenna shareholders and in exchange for 2,000,000,000 shares of Udenna company. The Swap would be providing extensive rights to the shareholders of Udenna Shareholders for current subscription rights of the Udenna Shareholders to the pending increase in the authorized capital stock of Udenna corporation (Shi, 2015). After the Swap share agreement of the business, Udenna would become a subsidiary company and the same is expected to bring about a change in the operations and also bring about a synergy effect for the same (Gregory & Whittaker, 2013).

b. The above case of share swap and takeover can be described as a friendly takeover, as the business of Udenna has accepted the acquisition and share swap strategy with ISM. The acquisition would allow the business to gain advantage of the synergy effect.

c. As per the case which is provided in the assessment, computation of the value of holdings of a shareholder who holds 100000 shares before the swap is being done. In order to achieve this the following computation is shown below:

Therefore, the above computations show that the overall shareholdings of Mr. X would increase significantly after the swap agreement is undertaken by both the businesses. The total shareholdings of Mr. X in terms of value can be depicted by above number of shares. Therefore, the above computation shows that there is an increase for all the shareholders of the business.

d. The shares of the business of ISM would be issued out to the potential investors at the rate of 3 per share. The shares would further contribute to the issued share capital of the business and thereby also increase the overall share capital of the business effectively. The business has also the option of opting for a reverse split option (He & Wang, 2015). In a reverse split option, there is offer to the business to effectively merge the shares which are in large numbers in smaller numbers of shares for the business. The option of reverse split is available to the business of Udenna as the company is very big company comprising of various holdings of other companies.

The advantages which can be pointed out for reverse split option are listed below in details:

• A reverse split is done normally for the purpose of preventing the stocks of the business from being delisted from the exchange. In addition to this, reverse splits can increase the share prices in the market and the same can attract numerous potential investors to the business.
• Reverse splits are also done with a view point of boosting the image and reputation of the business in the eyes of potential investors of the business.
• Reverse splits of stocks in a business demonstrates the strengths of the business and also draws attention of the shareholders and market analysts of the business.

e. After Udenna Corporation has entered the market and goes public using the backdoor of ISM, the share price of the business would be much high and it can be anticipated to be lower than the stock prices of ISM. The company is going to be listed for the first time and therefore it can be anticipated that the market would not be responding effectively to such a listing.

f. The business of ISM was listed in PSE in 1975 and since then the business has been performing significantly well. The market analysis of the business shows that there has been slight improvement in the share prices of the business (Dawar, 2014). The shares prices as per current market valuation is shown to be 6.14 (Edge.pse.com.ph., 2018). The market valuation of the shares of ISM is much more than 3 peso per share.

g. The business of Udenna Corporation is expected to have better performance from the perspective of long run. The business might face certain challenges in the short run but the same can be managed effectively (Andriosopoulos & Lasfer, 2015). The share price of the business would be on the rise in a five years period as the financial conditions of the business is strong.

Reference

Andriosopoulos, D., & Lasfer, M. (2015). The market valuation of share repurchases in Europe. Journal of Banking & Finance, 55, 327-339.

Dawar, V. (2014). Earnings persistence and stock prices: Empirical evidence from an emerging market. Journal of Financial Reporting and Accounting, 12(2), 117-134.

Edge.pse.com.ph. (2018). Stock Data. [online] Available at: https://edge.pse.com.ph/companyPage/stockData.do?cmpy_id=36 [Accessed 4 Dec. 2018].

Gregory, A., & Whittaker, J. (2013). Exploring the valuation of corporate social responsibility—a comparison of research methods. Journal of Business Ethics, 116(1), 1-20.

He, Y., & Wang, J. (2015). Stock split decisions: A synthesis of theory and evidence.

Iacoviello, M. (2015). Financial business cycles. Review of Economic Dynamics, 18(1), 140-163.

Shi, S. (2015). Liquidity, assets and business cycles. Journal of Monetary Economics, 70, 116-132.