Q is a quoted airline company that operates a network of intercontinental flights.

Q has $100$ million shares in issue and the company has a market capitalisation of

$$1\mathrm{.}1$ billion.

Qs board plans to acquire $100\%$ of L$,$ a quoted hotel company. L owns hotels in

many of the countries that are served by Qs flights. Qs directors believe that doing

so will enable Q to offer holiday packages as well as flights and so will be more

profitable.

L has $50$ million shares in issue and the company has a market capitalisation of

$$0\mathrm{.}5$ billion. Qs board plans to issue $50$ million new shares and exchange one new

share for each of Ls existing shares.

Each of Qs directors is remunerated with a salary and a percentage of Qs annual

profit.

$($i$)$ Evaluate the planned acquisition of L as a means of creating growth

for Q$.[7]$

$($ii$)$ Evaluate the agency implications for Qs shareholders of the proposal by

Qs directors to acquire L$.[7]$

$($iii$)$ Discuss the possibility that Ls directors will advise Ls shareholders to

reject Qs proposal once it has been announced.