Reference no: EM133011192

Case Study - Acquisitions case in fund its growth. In the last decade it has made over 60 acquisitions, extending its reach around the planet and diversifying into data and satellite communications, internet services and web hosting. Almost all acquisitions have been paid for using the company's shares.

The high fuelled 'growth through acquisition' strategy has had a number of outcomes. One is the significant management challenge of managing diversity across the world, straining manpower resources and systems. In particular, the internal audit department has been forced to focus on operational matters simply to keep up with the speed of change.

Shareholders have, on the whole, welcomed the dramatic rise in their stock price, buoyed up by the positive credit rating given by SDL, GlobeLine's favoured investment bank, who have been heavily involved in most of the acquisitions, receiving large fees from their services. Recently, some shareholders have complained about the lack of clarity of annual reports provided by GlobeLine and the difficulty in assessing the true worth of a company when result change dramatically period to period due to the accounting for acquisitions.

Ben Mervin is the visionary, charismatic CEO of GlobeLine. Over the course of the last three years his personal earning topped $77 million with a severance package in place that includes $ 1.5 million for life and lifetime use of the corporate jet. He is a dominant presence at board meetings with board members rarely challenging his views.

Recently, a whistle blower has alleged financial impropriety within GlobeLine and institutional shareholders have demanded meetings to discuss the issue. The chairman of the audit committee (himself a frequent flyer on the corporate jet) has consulted with the CEO over the company's proposed response.

Required -

a) Discuss agency costs that might exist in relation to the fiduciary relationship between shareholders and the company, GlobeLine, and consider conflict resolution measures.

b) Assess the position of GlobeLine's CEO using transaction cost theory and consider the negative impact of shareholder action taken to reduce this cost.