Karen Knox Exports, Inc., is a public company located in Clancy, New Mexico. The Knox family still owns a third of the outstanding voting shares. Knox is the only company with reliable sources for its imported gifts. The company does a brisk business with specialty stores such as Neiman Marcus. Knox's recent success has made the company a prime target for a takeover. An investment group is attempting to buy 52 percent of Knox's outstanding shares against the wishes of Knox's board of directors. Board members are convinced that the investors would sell the most desirable pieces of the business and leave little of value. At the most recent board meeting, several suggestions were advanced to fight off the hostile takeover bid. The suggestion with the most promise is to repurchase a significant quantity of outstanding shares. Knox has the cash to carry out this plan. Required Suppose you are a significant shareholder of Karen Knox Exports, Inc. Complete the memorandum to explain to the board how the repurchase of shares would make it difficult for the investor group to take over Knox. Include a discussion of the effect that repurchasing shares would have on shares outstanding and on the size of the corporation. To: Karen Knox Exports, Inc., Board of Directors Re: How the repurchase of shares would make it difficult for the investor group to take over Knox. Purchasing shares If Karen Knox Exports repurchases a significant quantity of shares, outsiders, such as the investor group, acquire a controlling interest ( 50+ percent) of the outstanding shares from the remaining shareholders. Because it takes cash to repurchase shares, the purchase the size of the corporation. Reducing the company's cash position may make the company sufficiently Re: How the repurchase of shares would make it difficult for the investor group to take over Knox. Purchasing shares If Karen Knox Exports repurchases a sig acquire a controllins remaining shareholders. Because it takes ca the size of the corporation. R decreases the amount of shares outstanding. increases the amount of authorized shares. increases the amount of shares outstanding. To: Karen Knox Exports, Inc., Board of Directors Re: How the repurchase of shares would make it difficult for the investor group to take over Knox. Purchasing shares If Karen Knox Exports repurchases a significant quantity of shares, outsiders, such as the investor group, acquire a controlling interest (50+ percent) of the outstanding shares from the remaining shareholders. Because it takes cash to repurchase shares, the purchase the size of the corporation. Reducing the company's cash position may make the co Because it takes cash to repurchase shares, the purchase the size of the corporation. Reducing the company's cash position may make the company sufficiently unattractive to cause the outside investors to abandon their takeover plan. vulnerable to cause the outside investors to take control of the company
