8

     CORPORATIONS AND MULTINATIONALS

    

GETTING ‘QUOTED’ OR ‘FLOATED’      If there are advantages in turning a business into a company, then the potential benefits from gathering lots of companies into a corporation are truly staggering.      But first a company must be big enough to be listed on a stock exchange. Most businesses are content to remain as private companies – their shares may be owned by a family or a few friends – but when a company decides to go public all sorts of things can happen. RUNNERS AND RIDERS      No one really knows what the shares of a private company are worth, because they are not for sale to the public or to put it more plainly, no one can gamble on them. Public – or listed companies are just like horses in a race – people can bet on them in the hope that they might win and make more money for them than the amount they initially invested – in other words, a return.      Because anyone can buy shares in them, big public corporations and multinationals – hundreds of big and small international businesses grouped together – can be jointly owned by thousands of people all over the world.

They are the favourites in the horse race not least because they employ the best jockeys – professional management teams – highly skilled in the psychology of marketing, labour relations, cost-cutting, creative accounting, and totally dedicated to making a profit for their shareholders.

John Kenneth Galbraith – a rare economist with a sense of fun – calls these managers the ‘technostructure’.

UNDER STARTER'S ORDERS      So, apart from raising extra cash from selling new shares to the public, there are at least two other reasons why companies ‘go for a listing’ – or ‘come to the market’, ‘go public’, ‘seek a quotation’ or a ‘flotation’ (they all mean the same thing): one is to find out the true value of the existing shares in the market – for the benefit of the existing shareholders – and the second is to join the big leagues with its vast potential for profits and growth, power and influence.      First of all, a company must put together a report showing how well it has done over the past few years, how much its assets – property and equipment – are worth, and what profits it expect to make in the future.      Then the report is taken to a special banker and stockbroker who will handle the sale of the company shares – with all the necessary paperwork – and generally give advice.      Because no one really knows what the shares are worth, the company, the banker, and the broker will have to sit down and guess what the right price is.      If they guess too low, the company and the existing share-holders won't get as much cash as they could have got. If they guess too high, nobody will want to buy the shares.

THEY'RE OFF!      However, once a company has gone public it can really begin to grow. Its shares can be bought and sold on the stock exchange and if it is run wisely and makes lots of profits, the value of the shares will increase and soon it will have enough money to make a bid – or try to buy another company.      TAKEOVERS AND MERGERS      When a company bids for another company – perhaps a rival or competitor in a similar business – the board of directors of the target company may advise their shareholders either to agree or to defend or contest the bid, but it is the shareholders who have the last word – by voting.      If everyone agrees to sell, it is called a ‘merger’, but if they do not want to be ‘bought out’ – and the bidding company gains control of enough shares – it is called a ‘takeover’.      In order to gain control of the other business, the bidding company has to be able to buy at least 50.1% of the shares of that company.

Some shareholders may wish to sell, others may not, and there are several ways of persuading... but let's not go into them except to say that they all involve making money or a return!