Reference no: EM132600709

Question - Meaning of Stock Splits and Dividends

A January 31 announcement to shareholders of Premier Financial, a California savings and loan company, stated that the company had "good news" for stockholders. The announcement went on to explain that the board raised the quarterly cash dividend 12% and then declared a five-for four stock split in the form of a 25% stock dividend. The additional shares were to be distributed on March 15 to shareholders of record on February 15.

On March 16, the board approved a merger between Premier Financial and a large U.S. steel company. The agreement called for a cash payment of $33.60 on each outstanding United Financial share. The original offer (in early February) was $42 per share for the 5.8 million shares outstanding.

1. As a recipient of the letter of January 31, you were annoyed by the five-for-four stock split. What would be a good letter to the chairman indicating the reasons for your displeasure.

2. How would someone respond to the unhappy shareholder in requirement 1.

3. A shareholder of Premier Financial wrote to the chairman in early March: "I'm confused about the change in the agreed upon price per share. I owned 100 shares and thought I'd receive $4.