12 Seeking a stock market listing.

(a) CP plc is a company operating primarily in the distribution industry. It has been trading for 15 years and has shown steady growth in turnover and profits for most of those years, although a failed attempt at diversification into retailing four years ago caused profits to fall by 30 per cent for one year. The figures for the latest year for which audited accounts are available are:

Turnover: £35.2 million Profit before tax: £13.7 million The company has been financed to date by ten individual shareholders, three of whom are senior managers in the company, and by bank loans. Shares have changed hands occasionally over the past 15 years but the present shareholders are predominantly those who invested in the company when it was formed.

Some of the shareholders are now keen to realise some of the profits their shareholdings have earned over the years. At the last Annual General Meeting, it was proposed that the company should consider a full listing on the Stock Exchange. You are required

(i) to discuss the advantages and disadvantages of a flotation on the stock exchange in the circumstances described above;

(ii) to explain and compare the following methods by which the company’s shares could be brought to the market:

• Private placing

• Offer for sale at fixed price

• Offer for sale by tender.

(b) Describe the services which are likely to be provided by the following financial institutions in connection with a public offering of shares:

• Merchant banks

• Stockbrokers

• Institutional investors.