(a) (i) Benefits to Jacob Co of having externally provided due diligence review.

- Save management time

- Lack of expertise
- Able to evaluate assets and liabilities.
- Identify operational issues. (legal case – not familiar with the evidence to look at)
- Enhance creditability (the report that made by expert are have more creditability rather than
report made by management) / independence/not biased

(Similar with Baltimore Q – matter to focus/same way to answer)

Lack of Expertise

Since it is the first time for Jacob Co to acquire a company, they may be lack of expertise in gathering
the information and might miss out important information regarding Locke Co.

By having Austen Co to provide due diligence review, Jacob Co are able to gain more information
regarding the potential acquisition, Locke Co.

Save management time

Having lack of expertise, require more time for Jacob Co to study about the

With the information, Jacob Co are able to know whether Locke Co will be beneficial to the company
or the other way around.

Identification of asset and liabilities of Locke Co

Before acquiring Locke Co, it is important for identification of assets and liabilities of the company by
reviewing it past, current and future financial statement.

Identification of any operational issues of Locke Co

By visiting … and perform background research

Could influence decision whether to acquire or not acquire.

Able to provide good quality of due diligence review

Has all expertise in term of experience and skills

(ii) Additional information and why

- Loan agreement – amount, interest rates, any other finance charges, any assets charged for the
loan, term and conditions, identifiy potential breach of covenant in the future.
- Legal case in relation to the actor – involves famous actor, Jacob Co reputation may be tarnish
upon acquisition of Locke Co, to identify the case likelihood of successful/probable payment
- Head office building – confirm whether the head office building will be included as part of asset
once acquired, if Jacob wish to relocate the head office and refuse to use the current location of
head office, may need to consider some compensation to the family members/owner.
- New head office – identify costs associated with the head office, location, size, fiancé by
loan/new share issuance.
- Agreement between Locke Co and Austin Co – type of outsourcing services, amount, probably
Jacob Co has its own accounting and tax function in house, once acquired may no longer
necessary to outsource the function, consider any penalties if breach the contract early.
- Forecast and budgets – to identify income generated expenses to be paid – seasonal period that
can generate the most income.
- Details about its overdraft facility – max amount, whether Locke Co has utilised the overdraft
facility – if reach max, difficult for Locke Co to obtain additional finance – might need to find
other sources of finance – Jacob Co will need to provide full finance to Locke Co and if it cannot
generate revenue as expected, may not be worthwhile to acquire Locke Co.
- Organisation chart – to identify important people to retain in the company, compensation costs
may need to be considered to make other unnecessary employees redundant.
- Information about legal the legal case – confirm how severe it is by looking at the press
release/media, how it will affect the reputation of Jacob Co once Locke Co is acquired.

What is conflict of interest?

- Why is this situation is considered as COI ?

- Safeguard.