APPENDIX II

Glossary of Business Terms

All-scrip offer: shares only, no cash.

Asset stripping: the buying of a company in order to sell off its assets or businesses separately.

Balance sheet: one of the most important statements in a company’s accounts, showing its assets and liabilities and how the business is funded by shareholders and debt.

Capital expenditure: ‘capex’ is the amount a company spends on buying fixed assets or investing in its own businesses.

Capitalisation: a measurement of corporate or economic size equal to the share price multiplied by the number of shares issued by a public company.

Depression: a severe economic downturn that lasts several years and adversely affects all economic indicators. The Great Depression of 1929 lasted for more than five years.

Hedging: a position established in one market in an attempt to offset exposure to the price risk of an equal but opposite obligation or position in another market – a strategy designed to minimise exposure to such business risks as a sharp contraction in demand for the business’s inventory while still allowing the business to profit from producing and maintaining that inventory.

Initial public offering: an IPO, or flotation, is when a company seeking capital, or a privately owned company looking to become publicly traded, issues common stock or shares to the public for the first time.

Issue price: the price at which the shares in an IPO are issued to the public. Either the company, with the help of its lead managers, fixes the price or it is arrived at through building a book of investors with the help of a merchant bank.

Recession: a general slowdown in economic activity over a sustained period of time, or a contraction in the business or commodity cycles.

Redeemable preference shares: shares that give the shareholder rights to dividends on specific dates, and often rights of redemption at the shareholder’s request.

Rights issue: a publicly quoted company can opt for a rights issue to raise capital from its shareholders. It is offered to all existing investors individually and may be rejected, accepted in full or accepted in part. Rights are often transferable, allowing the holder to sell them on the open market. Shares are generally issued on a ratio basis (e.g. a one-for-three rights issue).

Takeover bid: an attempt by one company to take control of another, usually by informing the board of directors that it intends to make an offer to its shareholders. If the board feels that accepting the offer is in the best interest of its shareholders, it recommends the offer be accepted.

A takeover is considered ‘hostile’ if the target company’s board rejects the offer but the bidder continues to pursue it, or the bidder makes the offer without prior notification to the target company’s board.

A hostile takeover can be conducted through a ‘tender offer’ where the acquiring company makes a public offer at a fixed price above the current market price to all stockholders to tender their stock for sale at a fixed price during a specified time, subject to the tendering of a minimum or maximum number of shares.

The bidder conducts ‘due diligence’ into the affairs of the target company to find out exactly what it is taking on in terms of financial, legal, labour, tax, IT, environmental and commercial matters.

In a ‘reverse takeover’, control goes to the shareholders (and usually management) of the company that is being acquired. A reverse takeover will almost always take place through a pure-equity acquisition or share swap.

Takeover premium: the temporarily inflated share price brought about by a takeover bid.