Size is everything

Nowadays people have a tendency to believe that companies sell shares to shareholders to increase
their capital. However in recent years, it is the contrary as companies decide to decrease the capital
invested by shareholders by re –buying back their shares. This is due an organizational restructure in
order to improve performance.

Reuters the largest company in media sector with a market capitalization over 10 billion focused its
strength in planning and to move with technology and invest in Research & Development rather than
major acquisitions. With this focus, the gearing &% was comparatively low and its cash revenue was
over 1 billion.

To boost up the shareholders, the board of Reuters decided to give bonus issue and in addition to offer a
dividend on the number of shares held so as to return cash excess. This has lead to an increase in the
share value of the company and consequently it lead to competitive advantage and was accept on the
stock market.

Nevertheless it might not be the case in all situations. Halifax has adopted the same strategy but it
resulted to a decrease in the share price value as investors were for a successful acquisition of
Birmingham Midshires Building Society.