6 Critique the alternative dividend policies that have been proposed. Discuss the implications of each of these positions for Georgia Atlantic Company.

7. Considering Georgia Atlantic's present financial condition, do you think the company is a likely target of a hostile takeover attempt? What effect would the firm's dividend policy have on its vulnerability to a takeover? How might the company use a restructuring that involved asset sales to reduce the threat of a takeover?

8. How should you deal with Junior's estate tax situation? Should you bring it up? If so, in what context and with what recommendation? If Junior does indeed want to hold down the price of the stock (but not hurt the long-run value of the corporation), should the other directors go along with him? How would "the market" be likely to deal with the situation, assuming that they have no information whatever regarding what is said or not said about it within the company?

through and have explained it to him. Junior might not want the value of the company to be maximized until after his death. Mark does not know Junior's view of this, but he does know that his tax advisors have thoughts Atlantic's "breakup value," or the value of the company if it were broken up and sold in pieces. He Finally, Markowitz knows that several Wall Street firms have been analyzing Georgia companies, including Japanese and European companies, are eager to buy prime properties such as has heard breakup value estimates as high as $3,500 per share, primarily because other met those owned by Georgia Atlantic. Of course, Georgia Atlantic could sell assets on its own, but Markowitz does not expect that to happen as long as Junior is in control. Table 2 Georgia Atlantic Company Selected Company and Industry Data Year 1985 1990 1995 2000 Earnings Book Value Price Industry per Share per Share per Share P/E Ratio $100 $ 824 $1,253 16.8 106 1.180 1,360 17.9 109 1,769 1,597 19.1 143 2,483 1.902 16.5 Industry MB Ratio 23 26 29 25 Industry Average Compound Annual Growth Rate in Earings per Share 1985.90 6.2% 1990-95 7.1 1995-2000 7.9 Table 3 Selected Stock Market Data Boise Cascade Chesapeake Corporation Georgia-Pacific Potlatch Union Camp Weyerhaeuser Average Payout 25% 31 40 35 44 42 Average PE 7.1x 9.2 9.0 102 10.5 10.0 Now assume that you are Abe Markowitz's assistant, and that he has asked you to help him With the analysis by answering the following questions and then by discussing your answers with the executive committee. Junior is famous for asking tough questions and then crucifying the person being questioned it he or she has trouble responding, and that is probably why Markowitz wants you to make the presentation. So be sure that you thoroughly understand the questions, and Table 1 Georgia Atlantic Company In Millions of dollars) Condensed Matce Sheets for the Year Ended December 1990 $125.2 2415 53667 5265 SA Cimet Find Teles 5959 $18.0 6.7 18.6 $433 93 26 SITE Ac payable Noyable Other comment faites Tool current liabilities Lorem delu Common stock 122.0 25.0 176.4 $366.7 So SUITE Reid amnings Toallabilities and net worth 2.9% 2.5x Currento 15 24 Industry average Delerato Industry average 45.15 37.9% 5405 4025 When Georgia Atlantic was originally organized, the senior Jenkins and members the family owned most of the outstanding stock. Over time, however, the family's ownership ponte has gradually declined due to the sale of new common stock to fund expansion. In 1995, in Jenkins, St. died, the presidency of the firm was passed to his son, Ben Jenkins, Jr., who was the time. By the end of 2000, the Jenkins family held only about 35 percent of Georgia Allure common ock, and this represented essentially their entire net worth The family has sought to finance the firm's growth with internally generated funkte greatest extent possible. Hence, Georgia Atlantic has never declared a cash dividend, nexhat had a stock dividend or a stock split. Due to the plowback of earnings, the stock currently self almost $2,000 per share. The family has stated a strong belief that investors prefer low Hocks because of their tax advantages, and they also think that stock dividends and stockh serve to useful purpose they merely create more pieces of paper but no incremental shareholders. Finally, the family feels that higher-priced stocks are more attractive to learn because the percentage brokerage commissions on small purchases of higher-priced tecki lower than on large purchases of lower-priced shares. They cite the example of Bertan Hathaway, whose stock price has risen phenomenally even though it now sells for thousand Bull, Berkshire's chairman, has done a superb job of managing the company's assent dillun per share and pays no dividends. (The family does acknowledge, though , that was the the use of its stock reflects that factor as well as Buffett's financial policies.) As the date for Georgia Atlantic's annual stockholders' meeting approached Me Goalshen, the corporale secretary, informed Ben Jenkins, Jr., who is commonly called til that this might be due to rising discontent over the firm's dividend policy. During the the company that an sually low number of shareholders had sent in their proti Goa years, the average payout for firms in the paper and forest products industry has been aku dominance chose to pay a dividend in 2000. The Jenkins family was also wanted percent y for the 39th straight year, Georgia Atlantic's board, under the Jenkins famil DOW