Marks & Spencer Essay Example | Topics and Well Written Essays - 3000 words

Marks & Spencer - Essay Example The company's preferred method of returning cash is by using the B shares scheme. Since it does not want to use the traditional share repurchase, it has created a conversion of shares – for every 21 current ordinary shares, investors will receive 17 new ordinary shares along with 1 B share for every current ordinary share (Marks & Spencer Plc 20020). The purpose of the conversion is to decrease the company's shareholding without using the traditional repurchase approach, while the use of B shares intends to give back the cash by redeeming it under two choices (Vandermewe 2003).  This B share scheme has offered both the company and the investors with regard to payout policy. The scheme addresses both the concerns of investors when cash is distributed by using the traditional shares repurchase, as well as their concerns when funds are distributed by increasing the amount dividend payout – that is, the high amount of income taxes that investors incur when they receive di vidends (Hakanson 1982). From the point of view of the company, it also uses this scheme in order to leverage certain payout policy theories.  For one, the B share scheme addresses the issues of payout policy such as information asymmetry, residual theory, and expectations theory (Keown 2002). When the company has decided to return the  £2 billion to its shareholders, it aims to reorganize its capital structure in line with the strategic changes that aims to implement (Marks & Spencer 2002). However, if the company chooses to repurchase its stock, investors will be skeptical about the company's moves and would have a more risky perception of the company, thus affecting the company's price/earnings ratio and the value of the stock (Brealey & Myers 2003). As with residual theory, the level of the cash that should be given back to the investors should be its residual earnings, after additional profitable investments have been made (Keown 2002).