Georgia Atlantic Case Study

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No Cash Dividends, No Stock Dividends or Split. In the case of Georgia Atlantic, this strategy is not recommendable because of several factors. First of all, the most recent Market-toBook value is well below 1, meaning that the company has not invested in any profitable projects anymore. The retained earnings would have generated a higher shareholder value if they would have been paid out to the shareholder. Furthermore the share price of the firm would stay rather constant and would not diverge too much from the optimal range between $20 and $40. A lower share price would also increase the P/E ratio of Georgia Atlantic signalling a healthier company to the market.

Immediate Cash Dividend, but No Stock Dividend or Split. The strategy to pay immediate cash dividends is definitely superior to the no cash dividend strategy, because Georgia Atlantic can increase shareholder value much more by paying out dividends than retain its earnings due to the fact that the company can be regarded as a value company with only a few growth opportunities. Still there is the problem that the firm’s stock price is too high. The actual price per share of $1,902 should somehow be lowered to a price somewhere in between the range of $20-$40. Therefore a high stock split is very recommendable. Additionally, with the low level of liquid assets, this will put even more pressure on the firm.

Immediate Cash Dividend plus a Large Stock Split. The shortcoming of the above strategy is solved in this proposal. The immediate cash dividend would increase shareholder value while a large stock split would lower the share price significantly to the required boundary. To reach a stock price around $30/share, the company has to declare a stock split of 63 to 1, meaning that every shareholder gets 63 new shares per share he already holds. A lower share price also would increase the liquidity of the share, because more investors are able to buy a round lot.

Immediate Cash...
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