Explore BrainMass

Explore BrainMass

    Benchmarking - Evaluating dividend policy

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Identify and research two to three companies that have faced issues similar to the following topic:


    How does each company use dividend policies to maximize shareholder wealth? What issues do these companies face?

    I need you to answer the following for each company:

    1. Situation facing the company
    2. How the company responded to the issue
    3. Outcomes of the company's response to the situation

    In another paragraph, compare and contrast the practices of each company related to those concepts and the financing alternatives that are available and the risks that are associated with each. For those risks identified, describe what tools are available to mitigate those risks.

    © BrainMass Inc. brainmass.com May 20, 2020, 3:00 pm ad1c9bdddf

    Solution Preview

    As the world of telecommunications continues to expand, more companies are looking for that extra advantage to remain ahead of the competition. Verizon Communications is one of those companies looking for that market advantage and has announced a deal to acquire MCI. The acquisition comes on the heels of another announcement by a competitor, in which SBC Communications plans to purchase AT&T for an estimated $16 billion. In order to rise above its competition, Verizon decided to implement a new dividend plan. "Verizon said it will pay $4.8 billion in stock and $488 in cash for MCI. Verizon will also pay special dividends of $4.50 per share, or nearly $1.5 billion. This makes the total deal for MCI worth more than $6.7 billion" (Kawamoto, 2005).
    The acquisition by Verizon has enabled the company to achieve two main objectives. The objectives of this acquisition are to continue growth while cutting costs. In order to continue to grow, Verizon felt this acquisition was necessary. "The wireless market is a key market for telecommunications providers. While traditional local and long-distance services have been falling off of revenue and subscribers every quarter, wireless plans have been going strong. But as wireless networks add new data services and as company work forces become more mobile, business customers are turning into an important market with the potential for huge growth, analysts said" (Kawamoto, 2005). Lester Electronics can benchmark Verizon as to how to successfully acquire another company and become the global leader in electronics. Verizon's second objective is to eliminate costs. Verizon believes that, by acquiring MCI, the company can consolidate its operations and become more effective. "Like the SBC-AT&T merger announced two weeks ago, the Verizon-MCI deal is about cutting costs. Verizon expects to save $1 billion in the third year after this acquisition is completed, Doreen Tobin, the company's chief financial officer, said during the conference call" (Kawamoto, 2005). The payment of dividends will help assure stakeholders that there is no need for worry with the merger.
    From the investors' perspective, the acquisition may take time to actually see a positive return, but as with most mergers prices of stock tend to increase which may help Verizon and its investors see an increase in their investment much quicker than anticipated. The dividend payments will be a wall of confidence for potential investors.

    Sears, Roebuck and Co. is one of the largest retail outlets providing merchandise and related services. Sears presently has over 2000 stores in the United States. Recently, Sears made the announcement that the company was merging with Kmart Holding Company.
    Sears' investors have grown accustomed to receiving dividends as the company has paid out dividends since 1993. "Since at least 1993 Sears has paid regular quarterly cash dividends, though the payout was trimmed from 40 cents to 23 cents per share in 1995. Records show that stock splits and stock dividends have been awarded as far back as 1911" (Yerak, 2005). However, these payouts are about to end with this recent announcement and this has caused investors to become ...

    Solution Summary

    This benchmarking contains information on three companies that can be related to the Lester Electronics scenario. The benchmarking focuses on evaluating dividend policy on wealth maximization.