ACCA

Strategic Business Leader (SBL)

Final Mock – June 2019

Marking scheme and suggested

solutions
2
Marking scheme
Technical marks
Requirement 1 Marks
(a) Up to 2 marks for discussion of each relevant strength or weakness. 12
Maximum of 8 marks available for strengths and 8 marks for weaknesses Balanced discussion
Up to a maximum of 12 marks for requirement 1(a)
(b) Up to 2 marks for discussion of each issue and for each recommendation. Maximum of 16
10 marks can be awarded for issues and 10 marks for recommendations
Up to a maximum of 16 marks for requirement 1(b)
Requirement 2 Marks
For each weakness, 1 mark for identification, 1 mark for consequence, up to 2 marks for 11
recommendation, capped at 3 marks for each weakness
Up to a maximum of 11 marks for requirement 2
Requirement 3 Marks
(a) Up to 2 marks per point. NPV analysis earns 2 marks. 1 mark per other relevant calculation 13
Up to a maximum of 13 marks for requirement 3(a)
(b) Up to 2 marks for each appropriate point for slide 1 10
Up to a maximum of 5 marks
Up to 2 mark for each appropriate point for slide 2
Up to a maximum of 5 marks
If the answer only includes slides (no notes) then maximum 2 marks per slide
Up to a maximum of 10 marks for requirement 3(b)
Requirement 4 Marks
Up to 2 marks for each relevant point discussing the potential acquisition 18
Up to a maximum of 18 marks for requirement 4

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Professional marks may be rewarded as in the following rubric:

How well has the

candidate
demonstrated
professional
skills as follows: Not at all Not so well Quite well Very well
1 (a) Analysis skills The candidate has The candidate has The candidate has The candidate has
in identifying failed to analyse attempted some made a reasonable demonstrated
the impact of Jack's leadership analysis of Jack's attempt at analysing excellent analytical
Jack's style. The answer is leadership style. Jack's leadership skills by identifying
leadership purely descriptive Analysis is mainly style. The analysis and justifying
style on the with no attempt to confined to incorporates the aspects of Jack's
organisation justify whether discussing identification of key leadership style
characteristics are strengths and strengths and which could be
strengths or weaknesses of his weaknesses with considered
weakness, and their style with little some justification strengths and
impact on CB. attempt made at as to why they are weaknesses. The
explaining why they strengths and analysis is
are strengths and weaknesses in this balanced,
weaknesses, or particular context. A recognizing the
how they may be reasonable attempt strengths of his
appropriate at was made to link style that have
different stages of strengths and contributed to CB's
an organisation's weaknesses with success, as well as
development. A CB's performance. weaknesses that
limited attempt was The candidate's are currently
made at linking answer was well causing issues. The
strengths and structured and impact of these on
weaknesses to made use of the performance of
CB's performance. appropriate the organisation
headings. has been discussed
in a logical manner.
The candidate
recognizes that a
leadership style
appropriate for a
growing start-up
may no longer be
appropriate for a
large quoted
company.
0 1 2 3

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Professional marks may be rewarded as in the following rubric:

How well has the

candidate
demonstrated
professional
skills as follows: Not at all Not so well Quite well Very well
1 (b) Communication The response is The candidate has The candidate has The candidate has
skills in unstructured and set out their used the correct used the correct
adopting an not in the format of response as an email format and email format and
appropriate an email to a client. email and there is the email itself has set out their answer
tone for the An entirely some structure to a reasonably clear in a clear, logical
audience and inappropriate tone the answer. structure and some structure, including
subject matter. has been adopted However, there are consistent logic. use of headings.
for an email to a many points where There are The tone of the
director. an inappropriate appropriate email is appropriate
tone is used, which recommendations, for communication
is overly critical of although the link to a senior person
Jack or the CB between the issues and a client,
board, or does not identified and the offering clear advice
take account of recommendations is and explaining the
Judy's position as a not entirely clear. need for change in
non-executive The tone used is a tactful,
director of CB generally tactful and professional way.
herself. The appropriate for a The email is
candidate has director of the persuasive in
included company and a setting the need for
recommendations client. change and how
but they are vague the recommended
and it is not clear changes will
how they will address the ethical
address the issues and governance
identified. issues identified.
0 1 2 4

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Professional marks may be rewarded as in the following rubric:

How well has the

candidate
demonstrated
professional
skills as follows: Not at all Not so well Quite well Very well
2 Commercial The candidate has The candidate has The candidate has The candidate
acumen skills demonstrated no demonstrated only demonstrated demonstrated
in assessing commercial acumen limited commercial reasonable strong commercial
the measures skills. The acumen skills. The commercial acumen acumen skills. The
that would candidate failed to candidate displayed skills. The candidate displayed
improve the display any some judgement candidate displayed strong judgement
performance judgement or and awareness judgement and and awareness
of CB awareness when when evaluating awareness when when evaluating
evaluating how to how to address the evaluating how to how to address the
address the control control address the control control
weaknesses weaknesses. weaknesses. This weaknesses. This
identified. Only Improvements extended to giving included identifying
generic proposals suggested were reasonable the commercial and
are offered, rather relevant and consideration to the reputational impact
than proposals tailored to this commercial of not addressing
which address CB's situation to some importance of these these issues, and
specific issues. degree. However, issues and recommending
this was limited by suggesting realistic improvements that
not fully considering controls, although are commercially
the commercial the analysis was viable while being
importance of these not as effective.
issues and the need comprehensive as it
for workable, cost- could have been.
effective controls.
Controls were
identified but not
described in
sufficient detail.
0 1 2 3

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Professional marks may be rewarded as in the following rubric:

How well has the

candidate
demonstrated
professional skills
as follows: Not at all Not so well Quite well Very well
3 (a) Scepticism The candidate has The candidate The candidate The candidate
skills in failed to display any made a limited employed displayed excellent
appropriate professional attempt at professional professional
challenge of scepticism in their deploying scepticism scepticism to
the analysis answer, instead professional concerning the question the
carried out choosing to accept scepticism when proposal, and financial viability of
the analysis at "face considering the highlighted areas of the new system and
value" and simply analysis. The concern in the way the way the
comment on the candidate identified the analysis was analysis was
numbers given. some areas of carried out, as well carried out. The
concern with the the data included. candidate showed a
proposal, but The candidate good understanding
overall focused made a reasonable of different ways of
more on performing attempt at carrying out
calculations in an conducting financial analysis
attempt to assess calculations to while also showing
the financial viability assess the financial good appreciation
of the proposal viability of the of the fact that a
without much in the proposal and made decision like this
way of further an attempt at will not depend
explanation. explaining the entirely on the
results and short-term financial
implications of this. impact.
0 1 2 3

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Professional marks may be rewarded as in the following rubric:

How well has the

candidate
demonstrated
professional
skills as follows: Not at all Not so well Quite well Very well
3 (b) Analysis skills The candidate has The candidate has The candidate has The candidate has
in identifying failed to analyse the attempted some made a reasonable demonstrated
key points and risks of the new analysis of the risks attempt at analysing excellent analytical
making system and of the new system the risks of the new skills by identifying
reasoned potential strategies. and potential system and key risks and
recommendati Answers are very strategies. potential strategies. explaining the
ons in relation generic, not However, there is The analysis potential impact on
to risks of the developed, and not little sense of incorporates the the organisation.
new system applied to the prioritization of identification of key Those risks with the
particular situation risks, and it is not risks and a most serious
described here. clear how the risk reasonable attempt potential impact
management was made to link have been selected
strategies link to the risk management for discussion. Risk
risks identified. strategies with the management
risks identified. The strategies are
candidate's answer appropriate and
was well structured very clearly linked
and in the right to the risks
format, with slides identified, making it
not carrying an clear how they will
excessive amount help to address
of information. those specific risks.
Overall, there is a
clear structure and
good logic. Slides
would be suitable
for a presentation at
this level.
0 1 2 3

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Professional marks may be rewarded as in the following rubric:

How well has the

candidate
demonstrated
professional
skills as follows: Not at all Not so well Quite well Very well
4 Evaluation The candidate has The candidate The candidate The candidate
skills in failed to evaluate made some attempt made a reasonable provided a
weighing up the issues involved at evaluating the attempt at providing comprehensive
the issues in acquiring issues involved in an evaluation of the evaluation of the
involved in Rides4U. The acquiring Rides4U. issues involved in issues involved in
acquiring comments are The evaluation acquiring Rides4U. the potential
Rides4U generic and do not provided lacked The evaluation acquisition of
deal with the focus, and tended included Rides4U. The
specifics of the to adopt a consideration of a candidate's
situation. There is scattergun range of factors and evaluation included
no attempt to weigh approach with a an attempt at a consideration of
up both pros and number of generic balanced review, financial issues,
cons. comments. The considering both strategic fit,
response was not pros and cons of stakeholder
balanced, being the acquisition. reactions and
heavily weighted However, it was not funding. The
either in favour of or a comprehensive candidate drew
against the assessment of information from
acquisition. relevant factors. across the case
study to inform their
analysis. The
evaluation was
balanced,
considering positive
aspects of making
the acquisition as
well as drawbacks.
0 1 2 4

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Suggested solutions
Note. For case study exams such as Strategic Business Leader, it is not possible to produce suggested answers
which cover all the valid points that candidates might make. Credit will be given to candidates for points which
are relevant to the requirements, even if they are not included in the suggested solutions.
The suggested answers presented below include more detail than would be expected from candidates under
exam conditions, because they are designed to show the range of relevant points which could be extracted from
the case information.
The solutions are intended to provide a structure of the approach required from candidates, and to cover the
range and depth of knowledge which might be demonstrated by the most well-prepared and able candidates. In
this respect, the solutions are also intended to support revision and tuition for future examinations.

Email
To: Judy Lee
From: Michael Sim
Date: March 20X9
Confidential
Dear Judy,
Thank you for your email. My thoughts on this are as follows.
1 (a) Jack's leadership style
Jack's approach to leadership would generally be described as "charismatic" or "transformational".
This type of leader builds a vision of the future and inspires people to follow it. They tend to be
less interested in systems and controls, and seek change rather than improvement.
Strengths of this style
Exhibit 2
Jack is clearly very creative, able to see possibilities and inspire people to help him build the
business. This has served Cheaper Bookings ("CB") well so far, as seen in its strong overall
financial performance. It has been particularly helpful in leading a start-up in an industry that is
changing very fast, and where constant innovation is required.
Jack also makes use of social media and has gained a high profile. This has benefits to the
company in terms of publicity, making potential customers aware of CB, and so more likely to use
its services. The travel booking market is very competitive and so this represents a major
advantage. As noted in the press article, it would otherwise require significant spending on
advertising.
One key role of senior leadership is to be a symbol and role model for the organisation. By
projecting an image that is controversial and innovative, Jack may assist with branding CB as a
"leading edge" company. This may help it attract customers and possibly investors, who are more
likely to believe that he is able to lead the company successfully in a fast-moving environment.
It is also noted that Jack is decisive and clearly communicates strategy. CB is in an industry
where technology changes fast and there are many competitors. In this environment, it is
important to be able to make quick, clear decisions in order to maintain a competitive advantage,
so Jack's style in this respect is appropriate.
Finally, Jack is clearly a very "hands-on", hard working manager who oversees all operations
himself. This can help to ensure quality in the operations of CB, and will help to inspire loyalty as
he sets an example to his staff of working hard.
Weaknesses of this style
Sometimes a leadership style which works well at one stage of a company's development works
less well at others. Jack's decisive, high-profile style may suit a fast-growing start-up better than a

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 mature, quoted company, with external shareholders and increased media scrutiny. There is a risk
that decisions will be made which alienate shareholders and other stakeholders.
In particular, his controversial use of social media carries increased risks as it may be considered
that as head of a large company he should be avoiding unnecessary controversy. If he tweets
information about the company, as he has done, then there is even a risk of breaking rules, with
potential fines and reputational damage. This is analysed in more detail in the later part of my
email.
Jack's very hands-on style also carries risks. As the company grows, it becomes harder and
harder to oversee all operations personally and, as the recent interview has showed, he may
become "overwhelmed with stress". This may lead to erratic behavior and may partly explain the
controversial social media posting. There is also a risk to his health, and if it suffered that would
probably damage the company as well.
(b) Governance issues and recommendations
The press article quotes an investor saying that the board is "behaving like his [Jack's] fan club".
This is only one perspective, and perhaps an extreme one, but it is a serious allegation. It is the
clear responsibility of the board of directors to oversee the strategy and governance of the
company and to hold the company's officers, including Jack, to account. As a public company, the
board not only need to carry this out, but be clearly seen to be doing it.
From this perspective, it is a concern that, as the article points out, five of the eight non-executive
directors have strong ties to Jack or his companies (including his cousin). At very least, this will
reduce the perception of their independence, and it may well reduce their independence in
practice. Most of these are considered independent under the rules of the Europan stock
exchange, which is a help, but if the general perception is that they are not independent then this
is still an issue and may impact the company's reputation.
An expert quoted in the article questions whether the current board has the appropriate expertise.
There is no further information about this, but if this is a widespread concern then it would be
helpful to undertake a review of what skills are required for the company at this stage and whether
the current board delivers them.
The company's voting structure also seems to give Jack significant control. Major changes require
a two-thirds majority and Jack owns 20% of the shares. This means that any change he opposes
would require the agreement of 84% of other shareholders (67/80). This seems like a very high
obstacle to changes if Jack opposes them. If Jack does not want to change, with Jack’s influence in the
board, less likely the change will be passed through.
A lack of strong governance seems to be shown in Jack's recent social media posting. By
announcing that CB would shortly be acquired, he would be encouraging investors to buy shares
in the company, in the expectation that the share price would go up. When this did not take place,
the share price fell. Investors who bought shares on the basis of the posting and then lost money
could have grounds to sue the company, and it may lead to regulatory issues or fines. He should
not be posting information like this on social media – it should go through formal channels with
any announcement being approved by the board.
Recommendations
It is noted that the board are agreed that Jack is indispensable to the business and this would mean
remaining as CEO. However, other changes should be considered, particularly those which would help to
reduce Jack's workload, which is clearly becoming an issue.
Firstly, Jack combines the roles of chairman and CEO. Given that he is considered to be too dominant
anyway, it is not helpful for him to be combining these. It is also contrary to best practice in corporate
governance in most countries. I would strongly recommend that the board seek to appoint an
independent, experienced chair who could help the board to function more effectively in its oversight,
freeing up Jack to focus on the business.

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 Secondly, the workload issue could also be addressed by reviewing the company's senior management
structure and team. Jack's style is to supervise all aspects of the business, but as CB grows this simply
may not be feasible for one person. One approach to consider would be to recruit a strong chief operating
officer to manage the company's day-to-day operations, so that Jack can focus on strategy and
technological innovation.
Thirdly, the board should consider ways in which the non-executive directors could be seen as more
effective and independent. The current board seems to comply with the rules on independence, but if, as
the article states, five of the eight independent non-executive directors have close ties to Jack, then there
may be legitimate questions about how independent they really are. The board should consider whether
some of the current non-executive directors should be replaced by others who will truly be seen as
independent.
I hope this is helpful. Please do contact me if you would like to discuss this, or any further advice I can
offer.
Michael
2 Briefing Paper
For the Attention of
FAO: Head of Internal Audit
Control weaknesses leading to accounting misstatement and recommended improvements
As the additional commissions have a material impact on the company's financial results, we need to
ensure that that there are robust controls over misstatement. Unfortunately, there are a number of
weaknesses that have led to the current situation.
Weakness: The additional commissions are accrued based on figures supplied by departmental
managers. It does not appear that these figures are challenged or verified in any way by the finance
department. Roger has commented that, with hindsight, the estimated additional commissions were out of
line with prior years, so even some basic checks could have identified that there was an issue.
Consequence: Managers can submit any figure, without fear of challenge and have an incentive for this
to be exaggerated (see below). There is a significant risk of misstatement.
Recommendation: The finance department should thoroughly review estimates received from
departmental managers, checking that forecasts of hitting sales targets are reasonable. This could
include comparison to prior years, looking at the overall sales trend in the current year and also trends in
the market as a whole. We could consider offering support from the internal audit department to this
process, given its sensitivity.
Weakness: Managers are paid bonuses based on meeting "stretch" profit targets, and these bonuses are
paid out before it becomes clear whether or not the estimated additional commissions were correct.
Consequence: Managers have a strong incentive to exaggerate the expected commissions in order to
meet their targets and receive bonuses. If the commissions turn out to be incorrect, it will be difficult to
recover the bonus, and in any case the manager may have left the business in the meantime.
Recommendation: Payment of bonuses for meeting profit targets should be deferred for six months, or
however long is needed to verify that additional commissions estimated were accurate.
Weakness: Roger comments that his perception was "we had to meet the figure we previously gave the
stock market" and implies that he may lose his job because they didn't. This suggests there is significant
pressure from senior management to meet profit targets by any means necessary.
Consequence: This sort of pressure may contribute to staff taking action to inflate profit figures, or to
allow others to do so without challenge.
Recommendation: Senior management need to make it clear to the business that, although profit targets
are important, there should be no question of tolerating questionable accounting and that staff are
encouraged to speak up when they see behavior that could be questionable.

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 Weakness: A member of the finance team went to see Roger about their concerns over the accounting.
Their behavior afterwards suggests that their concerns were not taken seriously and that they thought it
best to leave the company.
Consequence: This will deter others who may have concerns about accounting or other control issues
from coming forward with those concerns. This is turn could lead to weaknesses not being recognized or
flagged. It is also possible that this behavior is illegal as many countries have laws protecting
"whistleblowers" from any form of retaliation.
Recommendation: Internal audit should investigate this situation if possible to establish how the complaint
was dealt with and learn lessons for future situations. Depending on the result of the investigation, it is
possible that disciplinary action should be taken against Roger. CB needs to ensure that it has a robust
policy in place to protect "whistleblowers" and run training as necessary to ensure that this is understood
at all levels of the organisation.
3 (a) Report
To: Board of Cheaper Bookings
From: Kevin Young, Business Risk Analyst
Date: June 20X9
Review of cost-benefit analysis for new booking system
The cost-benefit analysis for the project has been calculated using simple payback. This method
determines the cumulative net cash flows and determines the point at which the initial investment
has been repaid. The cost-benefit analysis appears to suggest a solid case for going ahead with
the project on financial grounds, as payback is achieved in year three.

This method has its advantages, especially when the project is being managed by non-financial
personnel, because it is easily understood. It allows those responsible to ensure that the initial
funds invested will be paid back and quickly make a return on that investment. However, the
decision ignores all future cash flows after the breakeven point. It also does not take into account
the time value of money, nor the risk involved in a project. These could be accounted for by using
net present value techniques or discounted payback, incorporating both time value and risk into
the discount factor used for the calculation. Additionally, the method of appraisal, when used
correctly, only incorporates actual cash flows.
[Credit should be given for an NPV calculation, or demonstration of another appropriate
investment appraisal technique.]
It should be noted that an analysis such as this which only includes predicted financial costs and
benefits will only give part of the picture. As part of the decision-making process, the board will
also have to consider related strategic issues. In particular, is the system necessary to maintain
CB's brand and reputation as a technological innovator? Is it necessary to maintain our
competitive edge, as it seems likely others in the industry will adopt this technology in time?
Analysis of costs
The costs all appear to be relevant to the investment appraisal, although no details are supplied
about how they have been calculated. The system will be developed in-house which makes the
costs less clear-cut. Does the figure include staff costs, or also related costs such as equipment
and office space? Should we be factoring in the opportunity cost of what our staff would otherwise
be working on? If we need to increase our staffing, are recruitment costs included? More
information needs to be provided about the underlying assumptions and how these figures have
been calculated.
It also seems odd that anticipated costs for software maintenance and upgrades, as well as
training, are forecast to be flat. Most of these costs are presumably staff-related so it would be
sensible to factor an increase into the projections.

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 Analysis of benefits
It is unclear how the forecast for "increased bookings" has been calculated. It is always difficult to
forecast revenue, particularly in a fast-moving industry such as ours, so some information about
the research and assumptions supporting it would be helpful. We also need to be clear that this
reflects incremental cashflows, i.e. the additional profit arising from increased bookings, taking
into account the costs as well as revenues.
We also need to be clear what "brand enhancement" actually means in financial terms, since it will
need to translate into cash in order to be considered in this analysis. If the enhanced brand is
expected to result in an increased volume of business then we would expect it to be captured in
"increased bookings"
If "brand enhancement" does not result in additional cashflow then it will need to be removed from
the cost-benefit analysis which will leave the cashflow as negative over this time period, subject to
the items noted above.
On the other hand, as mentioned above, it may be that the decision should not wholly be made on
the basis of the cost-benefit analysis. It seems very likely that competitors will quickly adopt this
technology and so CB is at risk of becoming uncompetitive if it does not move ahead. As well as
considering the costs and benefits of the investment, it may be worth considering potential
financial losses if the investment does not take place.
(b) Slide 1: Key risks arising from the new system
 Commercial risks
– Financial impact
– Reputational impact
 Development risks
– Cost or time overruns
– Security flaws
Notes
Commercial risks
One key area of risk with any new system is that it does not work as intended, for example
delivering incorrect search results or not being available when customers want to use it. This
could have a number of specific consequences including the following.
Financial impact
CB operates in a fast-moving, highly-competitive business. If a customer is looking to book a
holiday and the system is not available, or results are returned which are not relevant, then in
seconds they will be able to navigate to an alternative website. This will mean a loss of business
for CB in the short term.
Reputational impact
As well as short-term financial loss, if customers have a bad experience with system availability,
or with poor search results, it will make them less likely to use CB in the future. They are also
likely to complain, particularly online, which will damage our reputation and long-term financial
performance.

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 Development risks
Another set of risks are connected with the development of the software itself and include the
following.
Cost or time overruns
Developing a system like this in-house is a major undertaking and it is always difficult to forecast
costs in advance. There is a risk that the actual development costs will be greater than envisaged,
which will have an impact on the commercial analysis.
Similarly, development may take longer than planned. This in itself will add cost, as staff will be
needed for longer, and this will also delay the benefits of the system being realised.
Security flaws
A new system, particularly one developed in-house, runs the risk of security flaws going
undetected. This could be a very serious matter for CB as they hold a great deal of personal data
including payment cards. If this data was stolen then it would have serious reputational, financial
and possibly legal consequences for CB, particularly given data protection laws such as GDPR in
the European Union.
Slide 2: Mitigating risks
 Importance of project plan
 Testing
 Regular reviews
Notes
Importance of project plan
One of the most critical risk management tools for a major project is having a detailed plan in
place. This will allow for evaluation of timing and feasibility of the project, and for a full risk
analysis. Resource requirements can be identified well in advance so that any additional needs,
e.g. for skilled developers, or experts in security, can be met well in advance. This will help
address the risk of cost or time overruns in particular.
Testing
A full programme of testing at each stage of development is essential and should be built in to the
project plan. This will include testing for security, functionality and, at the later stage, user
acceptance testing (UAT), to ensure a good user experience. Allowing adequate time, expertise
and resource for this will significantly mitigate the risks of poor performance and security flaws.
Regular reviews
For a project of this complexity and importance, reviews should take place at regular intervals to
ensure it is progressing on time and within budget and, if it is not, consider any mitigation that
should be undertaken. Reviews should be undertaken by people independent of the project, such
as the internal audit function, or possible outside consultants with expertise in technology projects.
A report should be delivered after each review, to include any recommendations for improvement.
4 Briefing Notes
FAO: Connie Lim
The idea of acquiring Rides4U can be considered from a number of different aspects.
Financial issues
As Rides4U is currently loss-making, it is difficult to evaluate using conventional valuation techniques
such as discounting cash flow and price:earnings ratio. Clearly, recent investors valued the company at
$5bn, on the basis that it is growing very fast and has very strong long-term prospects. On the basis of
the data supplied, revenue grew by 121% in one year, which is extremely high growth. There must be a

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question about whether this sort of growth can be sustained for very long, either in terms of market
growth or the strains it may place on their own organisation. It may be achievable by expanding into other
countries, as Rides4U currently only operates in Europa, but it seems that their rival Everywhere has
already carried out this expansion, which will make it harder to be successful.
Although the company is lossmaking, the loss margin did reduce significantly:
Last year – 62% loss margin
This year – 41% loss margin
This suggests that, if the company can continue growing, they should become profitable in the next few
years.
However, we should take into account that Rides4U has a much larger rival and therefore may struggle to
compete with them. This is likely to hamper future growth.
The fact that Rides4U and Everywhere are planning to move to autonomous vehicle technology over the
next few years also adds a significant element of risk. It is unknown whether this technology will be
viable, whether they will be able to make this transition, and what issues they will face if they do. For
example, significant resistance from drivers can be expected.
Strategic fit
Rides4U operates in a different industry to CB, which will make any acquisition challenging. We will not
have the expertise to run that business, so it will need to be autonomous to some degree. This might
reduce the scope for synergy.
On the other hand, there are similarities between the businesses. Both CB and Rides4U are fairly new,
technology-based businesses that have grown fast. Both operate as intermediaries – CB between
customers and holiday providers, Rides4U between passengers and drivers.
There is a potential for synergies, although it would require careful consideration, as they are less
obvious than if we operated in the same industry. Rides4U could be integrated into CB's booking
platform, so that when people are booking flights or hotels we offer them the option of booking travel at
the same time. Similarly, users of Rides4U could see a link to CB for any hotel or flight bookings they
want to make. It is also possible that we may be able to integrate IT platforms to some degree, which
would bring about savings.
Overall, however, I would advise against assuming that synergies will necessarily be significant, or that
strategic fit would be straightforward.
Acceptability of the proposed acquisition
The main stakeholders to consider in terms of acceptability of the acquisition would be our shareholders.
To a large extent, their reaction would depend on their expectation of financial viability. As noted above,
the business is growing fast but not yet profitable, so there are significant risks that it will not be a
financial success.
As noted in recent press reports, some shareholders have raised questions about the role and
composition of the board. It is possible that shareholders would prefer that the board focused on resolving
these issues rather than take on a very challenging acquisition. This could even lead shareholders not to
approve the acquisition.
The relationship with shareholders has also been damaged by the recent adjustment to financial
statements. Again, it is possible shareholders may feel that the board's focus should be ensuring that
financial controls are overhauled rather than embarking on a major acquisition.
Other stakeholders (staff, customers) are likely to be fairly indifferent to this issue.
Resources required
Rides4U has recently been valued at $5bn in a funding round, so this is likely to be the starting point for
acquisition negotiations, with the owners likely to want a significant premium in exchange for surrendering
control of the business. CB's current market capitalization is $18bn and we have no debt so, although it

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would be a very significant commitment, it should be possible to raise the funding required for the
acquisition either by debt or equity.
Raising equity may run into problems if the shareholders have issues with the current board. It may be
that they would require some sort of reorganization as a price of their support for the share issue.
It may therefore be preferable to fund the acquisition by debt. Assuming, say, a 20% premium on the
valuation to reflect control, we would need to raise $6bn. This would leave us with gearing of 33%
($6bn/$18bn) which seems reasonable. This is also likely to be cheaper than raising equity, although it
would increase financial risk as interest payments would have to be made whatever the performance of
the business.
Concluding comments
An acquisition of Rides4U would offer a potential avenue for growth, but it is an extremely risky one. The
board should consider alternative strategies, such as expanding the range of services booked, whether
there is any scope for geographical expansion, or whether another company in the same business could
be acquired, alongside the potential acquisition of Rides4U.

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