Page 4 - CIMA SCS Workbook February 2019 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

matter of opinion. GXK would seem to feel that it is in Vita’s best interests, but not everybody
would share that view.

On the other hand, I report directly to you, and should therefore assist you to the best of my
abilities in any task that is appropriate (i.e. legal and would not be considered unethical). It is not
unusual for the CEO of a quoted company to be asked to step down and allow another member of
the Board to take their place, provided it is what the shareholders demand. Your general request
for assistance would therefore appear to be reasonable business practice.

As a member of CIMA, I must demonstrate at all times the fundamental concept of integrity. This
means that I need to be honest and fair in all my business dealings; I would not, therefore, be
willing to be involved in any act that might be misleading or untruthful, either in direct dealings
with other people or in preparing information that I know will be presented to them.

In short, therefore, I would be prepared to assist you in confidence in any way that does not
impact on my ability to act with integrity.

EXERCISE 2

Email

To: Paul Pau, CFO
From: Senior Manager
Subject: Potential merger with Funfitt

The purpose of this email is to highlight the ways in which Vita would be impacted by a merger
with Funfitt, including considering Gal Yaluz’s own position. I will then address whether she needs
to mention the approach by Funfitt to enter merger talks to other parties. I have written it as if
you are speaking direct to Gal so that you can simply copy into your briefing notes for ease.

Factors to consider in a merger

A merger can be defined as the combination of two separate entities (in this case Vita and Funfitt)
into one entity. The following should be considered as part of the decision-making process on
whether to proceed:

Respective values

The values of the two businesses as separate entities will need to be determined to work out how
much the respective shareholders will receive in the newly-formed combined company.
Shareholders of Vita will cease to have shares in Vita; instead they will now hold shares in
whatever the new company is called.

The percentage of share capital issued to former Vita shareholders will depend on how much Vita
is contributing to the combined entity. For example, if it is decided that Vita is roughly equal in
value to Funfitt for merger purposes, then the former Vita shareholders will have half of the
issued share capital in the new company. If, however, Vita is deemed smaller than Funfitt, then
the shareholding in percentage terms will naturally be less.

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