1. In class, we address the importance of maximizing shareholders’ wealth. However, it seems like maximizing...

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Finance

1. In class, we address the importance of maximizingshareholders’ wealth. However, it seems like maximizing stockprices does not make sense, because investors focus on short-termresults and do not care about long-term consequences. What do youthink? Please discuss.
2. In February, Cap Inc. announced that it would split into twoindependent publicly traded companies: one comprised of its OldNavy brand, and the second a yet-to-be-named company that includesits other brands like Banana Republic and Athleta. The plannedbreakup is an acknowledgment of the two chains' diverging fortunesand how much Gap has lost its once-powerful grip on Americanconsumers. For several years, Old Navy has outperformed its sisterbrands Gap and Banana Republic with its lower price-points andcatchy marketing. Old Navy now exceeds the original brand in sales,making up nearly half of Gap Inc.'s $16.6 billion of sales in2018.
In your opinion, what are the benefits and downsides tosplitting Gap into two firms? How did Gap's stock react to the newsin after-market trading? How would you explain this reaction? Willthe separation save the company in the long run? Please elaborateon your answers.

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4.3 Ratings (827 Votes)

1 Empirical evidence does not suggest that markets react favorably only when corporate actions are deemed to lead to short term increase in prices Markets usually react favorably to actions which may not yield results in the short term but are beneficial for the company in the long term Additionally See Answer

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1. In class, we address the importance of maximizingshareholders’ wealth. However, it seems like maximizing stockprices does not make sense, because investors focus on short-termresults and do not care about long-term consequences. What do youthink? Please discuss.2. In February, Cap Inc. announced that it would split into twoindependent publicly traded companies: one comprised of its OldNavy brand, and the second a yet-to-be-named company that includesits other brands like Banana Republic and Athleta. The plannedbreakup is an acknowledgment of the two chains' diverging fortunesand how much Gap has lost its once-powerful grip on Americanconsumers. For several years, Old Navy has outperformed its sisterbrands Gap and Banana Republic with its lower price-points andcatchy marketing. Old Navy now exceeds the original brand in sales,making up nearly half of Gap Inc.'s $16.6 billion of sales in2018.In your opinion, what are the benefits and downsides tosplitting Gap into two firms? How did Gap's stock react to the newsin after-market trading? How would you explain this reaction? Willthe separation save the company in the long run? Please elaborateon your answers.