STUEDNT NAME: TSHEPISO MOSEKI

PROGRAM: B.COM BANKING AND FINANCE

MODULE: IVESTMENT AND PORTFOLIO MANAGEMENT

ID: 01181960612

LECTURER: MR MUCHINGAMI
QUESTION 1

A well run targeted share auction is designed to have a substantial positive value (price and
terms) received by the seller due to a variety of factors related to the creation of a
competitive environment. To what extent is this notion effective in corporate restructuring?

Targeted share auction

This is a controlled auction that involves a small group of qualified buyers that compete for
the acquisition of a company.

Advantages of targeted share auction to the seller

Survey the market

The seller together with the investment bank uncovers more potential buyers of the shares of
the company which can imply that more income for the company that is going public.

Control of the auction process

The seller may want to create a competitive environment with the intention to maximize the
bargaining power, by encouraging the potential buyers to bid against one another.

Negotiate with more than one bidder

Here the identity of the bidder is kept confidential and the seller can achieve a higher price
than otherwise possible under bilateral negotiations, therefore the seller can play more
favourable terms and conditions from the start.

Leverage

The seller can improve its leverage by imposing on expedited timetable, limiting the scope of
disclosure of information and setting the timing of bidder due diligence investigation

Disadvantages of targeted share auction to the seller

Cost of running an auction

The cost of running an auction is inevitably higher as a result of higher fees payable to
adviser, the seller will generally engage financial, legal and other advisors in the initial
stages for the auction.