Emi Group Case Study

2952 Words12 Pages
While conducting the analysis of EMI group’s dividend policy, one factor that stood out to us was the clientele effect. The clientele effect shows us who holds most of our outstanding shares. High tax-bracket individuals would prefer zero-to-low dividend payout to save on taxes. Low tax-bracket individuals would prefer a low-to-medium dividend payout, which gives them additional income while helping them save on taxes. An investing corporation would prefer a higher dividend payout because if they own a significant amount of shares, say 1 million, the income stream from that dividend would provide the company with more monetary resources while benefitting from tax exemptions. So before setting a dividend policy for EMI group, we must first…show more content…
EMI is attracting takeover interest from rivals, including the recent 260p offer from its U.S. rival, Warner Music. The company is currently involved in a GBP125 million to GBP150 million (British pounds) restructuring effort that is taxing its financial resources.

Still, EMI has much to celebrate. It maintains one of the strongest catalogs of music and artists in the industry. EMI’s music-publishing division is stable and profitable, and its restructuring efforts appear to be gaining traction. EMI’s digital sales are expanding aggressively and now represent 10% of group revenue. The company also made an agreement with Apple to be the first major music company to offer its digital catalog using the new format that maintains better sound quality and fewer rights’ restrictions.

Given that backdrop, EMI’s CFO Martin Stewart must recommend a dividend policy for EMI. Maintaining the 6p-per-share end-of-year annual dividend would require GBP63 million of EMI’s cash resources. Omitting the dividend may further disappoint investors and lead to greater softening of EMI share values in the market.

2. It seems like this dividend decision is a big deal. Do shareholders generally prefer firms that pay dividends? Do you think EMI shareholders would pay more if EMI promised a 6p dividend?

Students will generally claim that dividends are valuable to shareholders, and that this decision is a big deal for EMI. This discussion motivates an introduction to the
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