The
Blog activism is worth 10% of the total final mark. So please discuss on the
Blog all the following questions:
1) Using the legal entity map of
Campari group (see Blog VII) and the content of this Chapter you have to post
at least one question and the connected answer
2) Using the legal entity map of
Campari group and the content of the previous Chapters you
have to post at least one question and the connected answer
If
there is someone who just copy and paste the questions/answers of others,
please whistle blow letting me know
by email.
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ReplyDelete1.Is there a separation between control and direction in the Campari Group?
ReplyDeleteControl is the power to govern, while direction is the exercise of the control power, i.e. the exercise of the decision making power. Within a business group control is separated from management when the parent company delegates the exercise of the decision making power to the boars of its subsidiaries. For this case study, we use the definition of IAS 27 which states that a legal entity is controlled when it is consolidated. Each one is consolidated so there is no separation.
2.The separation between ownership and control. What type of agency problem is there in the Campari Group?
ReplyDeleteIn this case the ownership is concentrated to a degree that one owner has the effective control of the firm. Thus we are facing the agency problem of type II. In this case the conflict is between the controlling shareholder and the minority shareholder rather than manager-shareholder conflict.
1. THERE ARE NO QUESTIONS ON CHAPTER 8 THAT CAN BE APPLIED TO THIS LEGAL ENTITY MAP!!!
ReplyDelete2. Suppose that Alicros is owned (100%) by the public company “Firm F”, thus the ultimate controlling party of Sella & Mosca is:
The ultimate controlling party is always a physical person with a name and surname. We don’t have these informations here but we know that “Firm F” is a public company. Therefore since it is widely held, the ultimate controlling party is the Management of “Firm F”.
Author: Marleen Hansel
ReplyDelete1. Using the legal entity map of Campari group (see Blog VII) and the content of this Chapter you have to post at least one question and the connected answer;
Question: Is the control of the Campari group separated from the Ownership?
Answer: Since Alicros owns more than 50% of the shares in the group, it is enough to just look at its structure. Control and ownership are separated when it is a widely held company, because the control would be with the management and the ownership with the shareholders. In a family business, the family not only owns the company, but also controls it as they own most of the shares or have a significant majority. The same accounts for this case: If Alicros is a family business, control and ownership are not separated, only if Alicros was a widely held company.
2. Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer.
Question: Who is the ultimate Controlling Party of Camargen Srl?
Answer: Camargen Srl is 100% owned by Di.Ci.E. Holding BV, which is fully woned by Davide Campari. So the ultimate controlling party of Camargen is the same as of Davide Campari. Davide Campari is controlled by Alicros. Since we do not have any information about what or who Alicros is, we have to make hypotheses. If it was a family, a family member would be the ultimate controlling party. If it is another company, we would have to find out, by whome Alicros is controlled. If that was a family again, it is the same case as before. If Alicros was a widely held firm, the top Manager of Alicros would be the ultimate controlling party of Alicros, Davide Campari and Camargen Srl.
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ReplyDelete1) How would be interpreted, by opportunistic approach, Campari’s direction activity if Davide Campari order to “International Marques” to buy Brazilian products from “Campari do Brasil Ltda”?
ReplyDeleteThe answer to this question might depend on the theoretical framework we use to analyse such situation. In general, we might use opportunistic or efficient perspective, but here we will just consider the former. According to opportunistic perspective, such activities are seen as a way (potential) used by insiders of Davide Campari to extract benefits from International Marques. In particular, this activity might be seen negatively because there is an exchange of resources from a company controlled indirectly with the 33.3% to another controlled with the 100%. This might mean that this activity has been performed in order to move resources (through a sale) towards a company where Davide Campari has a higher percentage of cash flow rights!
2) What is the difference between the cash flow rights which Morgan Stanley Management Inv. Ltd and
Alicros have in CiSC’Odessa Sparking Wine Company? Motivate.
The answer is simply that Alicros cash flow rights are higher than Morgan Stanley Management Inv. Ltd. Why? Because we have simply to compute the cash flow rights of the two companies and, since they are the same, just compare the amount. We compute cash flow rights multiplying the different percentages owned by the two companies. Thus, Alicros will have the 50% because: (0,51*1*0,998) = 0,50 = 50% while Morgan Stanley Management Inv. Ltd has: 0,0204*1*0,998 = 0,0203 = 2,03%.
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ReplyDelete2. Has Campari group a pyramidal structure?
ReplyDeleteConsidering that there is an ultimate owner, Rosa Anna Magno Garavoglia, and there is one publicly traded intermediate company (Davide Campari S.p.A), it is possible to state that the Campari group has a pyramidal structure. Indeed there is a publicly traded firm Davide Campari S.p.A. that is 51% owned by Alicros S.p.a. and which has, in turn, 100% percent of the votes in the other companies of the group except for International Marquez V.o.f. and Kaloyiannis Koutsikos Distilliries Sa. If instead Davide Campari S.p.A. was 100% owned by Alicros S.p.a., then we would not call the ownership structure a pyramid.
1. You are an external investor and you know that the holding company Davide Campari has ordered to International Marques V.o.f. (Olanda) to sell goods to Campari France at a price that is lower than the market price. How do you interpret such transaction using the business group Perspective?
ReplyDeleteThe controlling party may find convenient tunneling resources in subsidiaries where her cash flow rights are higher. Despite this, we know that under the business group perspective the parent could use this transaction not for its private interest but for the interest of the whole group. Indeed the prejudice caused to International Marques V.o.f. (Olanda) might be offset by the benefits arising from its participation in the group structure.
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ReplyDeleteThis comment has been removed by the author.
ReplyDelete1. Using the legal entity map of Campari group (see Blog VII) and the content of this Chapter you have to post at least one question and the connected answer
ReplyDeleteQ. Discuss the concepts of de juro and de facto control and its effects on the example of Campari Group.
A. Alicros has a de juro control over Campari group (51% voting rights) and through it – over most of its subsidiaries. The only subsidiary with de facto control is International Marques V.o.f. (33% of shares), where the control is not formal, but substantial. Thus, in the former case the ownership and control stand close, while the latter demonstrate higher separation between them. Such situation may affect the following:
- the ability to choose the board of directors: de facto control implies possibility to have minority shareholders in the board and larger separation between control and direction.
- de juro control provides less cash flow rights than de facto control: Alicros would receive 16% of cash flow rights from Marques and 51% from Skyy Spirits.
- if Campari Group is the only major shareholder in International Marques V.o.f., there is a possibility for opportunistic behavior (tunneling of funds from the bottom upwards) and efficient behavior – in case the subsidiary is governed for the benefit of the whole group economy.
2. Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer
Q. The board chairman of Sella and Mosca is simultaneously appointed as a chairman of Camargen Srl. Is such action allowed? How will it affect the performance of the business?
A. Both the companies belong to the same business group and azienda, i.e. pursue one primary interest and serve one goal. From this point of view, simultaneous employment of a board member in two or more boards within the group does not constitute any conflict of interests. However, there is a risk of conflict of commitment in this case, since engagement in several positions may take away attention and efforts given to each company’s affairs.
1) Using the legal entity map of Campari group (see Blog VII) and the content of this Chapter you have to post at least one question and the connected answer
ReplyDelete-What is the typical italian situation regarding the relationship between ownership and control and what are the implications?
In Italy, both listed and unlisted company experience a situation of ownership concentration and the presence of pyramidal business groups controlled by families. This situation lead to a poor investor protection and the risk of minority expropriation through related party transaction.
1) Using the legal entity map of Campari group (see Blog VII) and the content of this Chapter you have to post at least one question and the connected answer
ReplyDeleteHow would be interpreted the direction activity in Davide Campari group under the opportunistic and the efficient perspectives?
Using the legal entity map of Campari group we can immediately see that Davide Campari holding is controlled by Garavoglia family trough Alicros with 51% of the shares. To interpret the direction activity there are two different perspectives: the opportunistic and the efficient. The former derives from the agency theory. In this case the direction activity could be used as an instrument of potential expropriation. For example if the management of Davide Campari orders to International Marques V.o.f. to sell raw materials to Sella e Mosca at a lower market price, this could be done to transfer resources from a subsidiary where the controlling shareholder has a lower percentage of cash flow rights to another one controlled and owned with 100%. In an opportunistic perspective intragroup transactions are used to transfer resources from subsidiaries where the ownership is lower to the ones where this percentage is higher. On the other hand, with the efficient perspective, the direction in a business group (such as Davide Campari group) should bring benefits to each group’s firm. The group is considered as a single economic entity and the intragroup transactions are viewed as a way to reduce inefficiencies of the market and important transaction costs. So under this perspective the previous example would be evaluated in a positive way and justified with the “system effect”: the whole (the group) is higher than the sum of the parts (the single legal entities).
2) Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer.
What are the cash flow rights that Cedar Rock Capital Ltd has in CISC’Odessa Sparkling Wine Company?
To calculate the cash flow rights, so the corporate ownership, that Cedar has in CISC’Odessa we have to multiply first of all the percentage that Cedar owns in Davide Campari (10,51%) for the one that Davide Campari has in Di.Ci.E. Holding BV (100%), after that for the one that Di.Ci.E owns in Campari International S.A.M.(100%), then for the one that Campari International has in Campari Schweiz Ag (100%) and so forth till the percentage that Campari Argentina has in CISC’Odessa. So the calculation is: 10,51%*100%*100%*100%*75%*100%*99,8%= 7,86%
This means that Cedar Rock Capital Ltd owns around 8% of cash flow rights in CISC’Odessa Sparkling Wine Company, so its ownership in CISC’Odessa is around 8%.
2) Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer
ReplyDelete-In preparing a consolidated financial statement of a group, do we have to consider inter-companies transaction?
Since we have to consider the group as a single economic entity we must act like these transactions have never occured so we must eliminate their effects.
ReplyDelete1) Suppose Davide Campari does not delegates any decision-making power to its subsidiaries. Which kind of perspectives can be used to analyse this situation ?
There are at least 3 perspective with which we can describe this decision: opportunistic, efficient and group perspective.
According the first perspective we could argue that D. Campari want to exploit its direction in order to extract benefits for insiders at the expenses of outsiders, like minority shareholder. In these cases tunnelling is an instrument that can be used for that purpose.
Conversely, the efficient perspective can support the decision of D. Campari if the latter aims to reduce and\or eliminate transactional cost that can arise. Indeed, one of the main reason of establish a group is also this consideration of remove costs among the group itself.
Last but not least, using the group perspective, we can argue that the decision has been made in order to support the interest of the group to reach its overall equilibrium rather than the one either the parent or the subsidiary. Therefore, D. Campari, according with the perspective, has made the decision to preserve the group equilibrium.
However, usually the parent company is liable of damaged caused toward its subsidiaries.
2) Chapter 7: Suppose that Campari group operate in a single sector, thus Campari do Brasil Ltda is:
If the subsidiary, Campari do Brasil, operates in a related business there is a lack of the autonomous system characteristic of the azienda. Therefore, unless the parent has delegated this autonomy, Campari do Brasil cannot be considered as an azienda.
1) Using the content of the Article 2497 bis of the Italian Civil Code, answer the question in the following case.
ReplyDeleteRedfire Inc (USA) is going to sell Cabo Wabo Llc to a third party at a certain price but, before to complete the sale, Redfire Inc’s Board decides to sell a plant crucial for the Cabo Wabo Llc so substantially decreasing the value of the company.
In which case are the Redfire Inc’s directors liable for such detrimental action?
The Article 2497 bis of the Italian Civil Code requires that the submission to directing activity is
expressly indicated in the subsidiary’s correspondence and official documents.
Therefore, if the directing activity by Alicros on Redfire Inc is disclosed in the official documents of the company, so that the third party can be aware of it, then Redfire’s Directors cannot be considered liable for the sale of the “crucial plant”. If, on the other hand, the direction is not expressly disclosed in the documents, Redfire’s Directors should be considered liable.
2) Analyse the case of Alicross’ Directors perpetrating crimes (such as polluting waters) through Campari France SA under the Organic Theory perspective.
If Alicross not only controls, but also directs Campari France SA, then a crime perpetrated by Campari France affects also Alicross’ Directors that are liable because of their directing activity on Campari France SA. Moreover, using the Organic Theory perspective, not only the people governing the company are responsible, but also the company itself. In fact, according to this theory and its developer, Arthur, not only individuals can be considered as legal persons with rights and duties, but also corporations itself. For this reason, corporations, having legal personality, should be compared to a citizen with its responsibilities.
12. Using the legal entity map of Campari group (see Blog VII) and the content of this Chapter you have to post at least one question and the connected answer
ReplyDeleteYou are an external investor and you know that the holding company Davide Campari has ordered to International Kaloyiannis Distilleries SA to sell goods to Campari Austria Gmbh at a price that is lower than the market price. How do you interpret such transaction?
Davide Campari is moving resources from a subsidiary (Kaloyiannis Distilleries SA) owned with a lower percentage of cash flow rights (75%) to a subsidiary (Campari Austria Gmbh) with a higher percentage of cash flow rights (100%). This can surely be seen as “tunnelling” which is defined as the transfer of assets and profits out of a firm for the benefit of its controlling shareholders. However, there is another possibility, which focuses on the interest of the whole Group. Considering the interest of the group means interpreting an intragroup transaction not as an isolated one, but in a wider perspective. Therefore this transaction could have been important and essential to Davide Campari to obtain and ensure the so called “system effect”, so that the whole results is higher than the sum of the parts. “This concept encompasses the so-called theory of ‘compensatory advantages’ that have led to heated discussions in Italian law doctrine (Cariello, 2006; Denozza, 2000; Fasciani, 2007; Rossi et al., 2002), for which the prejudicial impact of the parent company’s decision may eventually be offset by the benefits arising from the directed companies’ participation in the group structure.”
12. Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer
What are the cash flow rights that Alicros has in International Marques V.o.f. Company?
In order to calculate the cash flow rights we must multiply the percentage of voting rights that Alicros has over Davide Campari (51%), by the percentage owned by Davide Campari over DiCi Holding (100%), and again by the percentage owned by DiCi Holding over International Marques V.o.f (33.3%). The results 0.51*1*0.333 = 0.16983 show that Alicros has almost 17% cash flow rights in International Marques V.o.f.
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ReplyDelete1. Using the legal entity map of Campari group and the content of this Chapter post at least one question and the connected answer;
ReplyDeleteDoes Campari group has a pyramidal ownership structure?
A pyramidal business group is an organizational structure in which a holding company at the owns shares in subsidiaries, which in turn have subsidiaries of their own. A firm’s ownership is a Pyramid (20% def.) if:
• It has an ultimate owner
• There is at least one publicly traded company between it and the ultimate controlling owner
Under these considerations we may conclude that the Campari group has Pyramidal ownership structure as Davide Campari holding holds directly four subsidiaries which in turn hold their subsidiaries, moreover there exists an ultimate controlling owner the Garavoglia’s family wholly owns ALICROS Spa (through 51% of shares in the holding Davide Campari) and there is a publicly traded intermediate company ( Davide Campari SPA).
2. Using the legal entity map of Campari group and the content of this Chapter post at least one question and the connected answer;
ReplyDeleteBased on the answer given in Q1 do you think there is separation between control and management? Explain.
Control is the power to govern while direction is the exercise of the control power, the exercise of the decision-making power; within a business group control is separated from management when the parent company delegates the exercise of the decision-making power to the boards of its subsidiaries. In Q1 we concluded that the Campari group has a pyramidal ownership structure, this kind of structure is often characterized by a situation in which the parent company at the top of the wider group not only controls but also directs its controlling sub-holdings. However we may interpret the direction activity both from an efficient and from an opportunistic perspective. According to the former directing activity is favourable saying that Davide Campari’s subsidiaries benefit from being part of such business group (synergy effect). The opportunistic perspective instead derives from agency theory thus it interprets the direction activity together with high separation of ownership and control typical of pyramidal structure as a way to divert resources within the group through related party transactions.
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ReplyDeleteQuestion 1: Using the legal entity of Campari group and the content of this Chapter, you have to post at least one question and the connected answer
ReplyDeleteConsider the following case: The Group’s directing company, Davide Campari, orders the executive of its directed subsidiary, Sella & Mosca Commerciale Srl, to approve a transaction that will transfer profits to a corresponding subsidiary, Red Fire Mexico, as a means of exploiting Mexico’s lower taxation and financially benefit the Group as a whole. However, the intra-group transaction is financially unfavorable to the Italian subsidiary, and moreover illegal. If the Italian government decides to sue for tax evasion, who will be held legally liable for the transaction – Davide Campari or its Italian subsidiary?
Answer: Davide Campari
Pursuant to the Italian Corporate Law Reform (described on pg. 323 of the teaching notes), the parent company of an incorporated business group assumes ultimate liability for damages incurred from its affiliates’ impropriety; such liability is contingent on the condition that the parent exercises management and coordination powers over its subsidiaries. In this case, the directing company, Davide Campari, abused its powers by ordering its directed legal entity, Sella & Mosca Commerciale Srl, to authorize an illicit transaction. Moreover, given the fact that the profit transfer was in conflict with the firm’s own interests, it is reasonably presumed that the Italian subsidiary would have declined the transaction if the parent company did not maintain the legal right (i.e. control) to govern its financial and operating activities. Therefore, under Italian law, the Campari Group may be treated as a single legal entity whose holding company is assigned liability. As a consequence, the court may “pierce the corporate veil” by exonerating the expropriated subsidiary in lieu of prosecuting the parent company, Davide Campari, for the damages caused by the fraudulent intra-group transaction.
Question 2: Using the legal entity of Campari group and the content of the previous Chapters, you have to post at least one question and the connected answer.
ReplyDeleteUsing the information presented in Chapter 4, describe the ownership structure of the Campari Group in terms of shareholders’ voting rights.
Answer:
With 51% of voting rights in Davide Campari, the holding company Alicros is the ultimate owner of the business group. The Garavoglia family holds 60% of Alicros’ shares and, by virtue, has a 31% stake in Davide Campari. Thus, the Garavoglia family is the ultimate controlling party of the Campari Group. The financial intermediary, Cedar Rock Capital Ltd, owns the second largest proportion with 10.51% of Davide Campari’s holdings. The investment firm is the largest relevant minority shareholder of the Group, although it is non-qualified by definition given that it has less than 20% of the voting powers. Only two other minority shareholders – Morgan Stanley Management and Independent Franchise Partners – are acknowledged in the map. The investment corporations are classified as relevant, given that they own more than 2% of Davide Campari’s holdings, 2.04% and 2.02% respectively. However, they are far from the minimum 20% required to be a qualified minority shareholder. The controlling shareholder, Alicros, and three relevant minority shareholders account for 65.57% of Davide Campari’s total holdings. The remaining 34.43% of shares is owned by minority shareholders, whose holdings are too insignificant to be classified as relevant or included in the Campari Group’s legal entity map.
1. Why the parent company does not exercise the direction activity,delegating it to its subsidiaries?
ReplyDelete"The tendency to show that the controlling company does not exercise the direction activity of its subsidiaries is high in case of a high degree of separation between ownership and control because of the higher risk perceived by the minority shareholders".
2. What are the cash flow rights Indipendent franchise Partners Llp has in Kaloyannis koutsikos distilleries sa?
Cash flow rights represent the ownership and can be calculated multiplying the percentages of the shares: 2,02% * 100% * 75% = 1,515%
Indipendent franchise Partners Llp has 1,515% cash flow rights in Kaloyannis koutsikos distilleries sa, so it owns 1,515% of that company.
1. Separation between control and ownership.
ReplyDeleteSometimes the ultimate owners of the firm have no interest in the direction and delegate the direction of the firm to others. This is not the case of Davide Campari – Milano Spa. In fact, the CEO of the company is Luca Garavoglia, son of Rosa Anna Magno Garavoglia, who owns 60% of Alicros which, in turn, owns 51% of Davide Campari – Milano Spa.
2.Is it possible to launch an hostile takeover to Davide Campari Spa?
No, it is not possible. In fact, a hostile takeover means that someone thinks he/she can make a better use of the firm’s assets and equity in order to make it more profitable (i.e. valuable) then it is at the moment and is willing to gain control by buying enough shares from the minority shareholders. This all happens without the consensus of the ultimate owner of the firm and, in fact, could face a counter-move from the firm’s owners. In this case, though, the firm is controlled by Alicros with 51%, meaning that control cannot be gained (maximum is 49%, not enough to appoint the majority of directors). So, only a friendly takeover is possible in Campari until Alicros will decide to dismiss at least 1,000000001% of its shares.
1.Separation between control and direction in Campari Group.
ReplyDeleteControl is the power to govern financial and operating policies, power to formulate strategies on any level, while direction is the exercise of the control power. In business group control is separated from management when the parent company delegates the exercise of the decision-making power to the boards of its subsidiaries. And definition of IAS 27 states that a legal entity is controlled when it is consolidated.
We assume that since Davide Campari owns 100% of shares of most of its subsidiaries the BoD of subsidiaries are also appointed by the parent company, so in this case there is not separation between the control and direction in the Campari Group.
2. Davide Campari has the power to appoint the majority of board members of Cabo Wabo. Under the agency theory how can we evaluate the board in Cabo Wabo.
Let's assume that Davide Campari appointed a majority of BoD from the inside directors. Accordingly agency theory majority of non-independent directors in Bod can lead to a conflict of interests as by this theory executive directors in opposite to non-executive are motivated to maximize their own profits not the profits of organization. The agency theory strongly emphasizes the roles of corporate boards to monitor management and to represent the interests of shareholders and proposed that owners and managers have contradictory risk preferences which may lead to managerial decisions that depart from shareholder preferences. So conclusion of the above mentioned hypothetical situation under the agency theory would have negative impact in the organization.
1. Using the legal entity map of Campari group (see Blog VII) and the content of this Chapter you have to post at least one question and the connected answer.
ReplyDelete2. Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer.
What are the cash flow rights that Cedar Rock Capital Ltd. has in International Marques V.o.f. (Olanda)?
To calculate the cash flow rights we have to multiply the percentage of voting rights that Cedar Rock Capital Ltd. has over Davide Campari 10,51%, by the percentage owned by Davide Campari over DiCi Holding Bv (Olanda) 100%, and by the percentage owned by DiCi Holding Bv (Olanda) over International Marques V.o.f. (Olanda) 33,3%. The results (10,51%*100%*33,3%) show that Cedar Rock Capital Ltd. has 3,50% cash flow rights in International Marques V.o.f. (Olanda).
1 – Using the legal entity map of Campari group (see Blog VII) and the content of this chapter you have to post at least one question and the connected answer.
ReplyDeleteQ: Which is the liability regime provided by the Italian Civil Code for Italian business groups' holdings?
A: The Italian Corporate Law Reform of 2003 states that “the directing company, when directing other companies acts in its or others’ interest in violation of the principles of fair corporate and business management of the directed companies, shall be directly responsible to the outsiders of the directed companies for the prejudice caused”.
This means that the holding could be held responsible for violations physically perpetrated by subsidiaries.
However, in these situations, in order not to be held co-reponsible of the violation, subsidiaries have the obligation to disclose if they are directed and coordinated by their parent company.
2 – Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer.
Q: How can we compute both voting rights and cash flow rights Morgan Stanley Management Inv. Ltd. has over International Marques V.o.f. (Olanda)?
A: Since Morgan Stanley Management Inv. Ltd. does not represent the ultimate owner of the Davide Campari Group (it is Alicros), it has no explicit voting rights in International Marques V.o.f. (Olanda). More in detail, it has no explicit chance to appoint board members in Davide Campari nor in Di.Ci.E Holding Bv (Olanda), which is controlled by Davide Campari and which appoints International Marques V.o.f. (Olanda) 's members.
However, as far as cash flow rights are concerned, we can compute them as follows: 0.0204* 1*0.333 = 0.0068. It means that Morgan Stanley Management Inv. Ltd. owns 0.68% of International Marques V.o.f. (Olanda) 's cash flow rights.
1- Using the legal entity map of Campari group (see Blog VII) and the content of this Chapter you have to post at least one question and the connected answer
ReplyDeleteIf Davide Campari orders to International Marques VoF Canada to sell goods to Campari Benelux SA at a lower price then the one fixed by the market, can it be recognize as a tunneling strategy?
There are two ways to interpret this transaction; This can be definitely be tunneling if resources were moved from a society where you have fewer rights to one with more control for personal interests of shareholders. On the other hand if the action is done to improve the overall condition of the entire business and appears to have a more positive impact and critical to improving the conditions of the whole group, there is no way to interpret it as tunneling.
2- Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer;
Who is the ultimate controlling party of Campari Australia Pty Ltd?
Campari Australia Pty LTD is fully owned by Davide Campari. The latter is controlled by Alicros 51%. It means that Campari Australia and Davide Campary have the same ultimate controlling party. We can not say anything more about Alicros because we do not have enough information to understand who is in charge of the company.
1) Suppose that a member of the Campari family sits in the board of directors of the subsidiary Kaloyiannis Koutsikos Distilleries Sa, how is the subsidiary degree of independence?
ReplyDeleteDue to the fact that inside of the Kaloyiannis’ board the independent directors are appointed by the shareholders, and the majority ones are the Campari family members, and the presence of a controlling family member inside of the board, the actual separation between control and direction is really low. Moreover the subsidiary’s board is not independent and has a little degree of autonomy in the decision making process.
2)Is the subsidiary Campari Argentina Sa could be seen as a legal entity and a part of a single economic entity?
Campari Argentina Sa can be seen as a single legal entity and has its own personal liability and its own stakeholders. Thus, the subsidiary is a element of the Campari business group that is managed as single economic entity by producing a consolidated financial statement and operating under a shared common mission with shared corporate primary interests.
Q: On the basis of the information you can read on the following chart, would you say that there is a high level of separation between ownership and control in the Campari Group?
ReplyDeleteA: As far as I can read from the chart here below, it seems like Alicros directly controls almost the totality of Campari’s subsidiaries through equity (cash flow rights) as much as through voting rights, in that it is the party that gains and risks the most in the holding, which in its turn (the holding) controls almost any subsidiary by owning it 100% (except for just two cases).
However, some separation between ownership and control still exists, since while Alicros practically masters (control) the totality of the assets of the group, its cash flow rights (ownership) over a subsidiary taken individually are 51% at most.
Q: Would you consider SKY Spirits Llc (USA) as an azienda? Could you dare to provide a clear-cut answer just by looking at this chart?
A: Provided that, in order for an economic entity to be defined as an azienda it must possess the prerequisites for aziendalità (systemic coordination, decision-making autonomy and economicità), we should verify whether it is possible to find the presence of these features from analysing this chart.
So far systemic coordination we should verify whether SKY Spirits LLc could express its potential even if taken individually, that is, independently of the synergies entailed by the membership of the group. We have no clue upon it on this chart.
Economicità calls instead for carrying out business with strategic effectiveness (meeting demand) and operational efficiency (making the best use of constrained resources), but we can’t assess their presence through this chart either.
Decision-making autonomy instead can be interpreted as the autonomy the company has in achieving its objective, even if set by others, that is, the parent company. For this reason we should verify whether SKY Spirits LLc could economically afford to pursue its mission independently of the intervention of the parent or other subsidiaries (by means of strategies like cross-subsidization for instance, that is, moving resources from a healthy company of the group to one that is on distress, so as to maintain the systemic effect of the whole conglomerate).
On the light of the considerations made so far, I would not dare to provide a straightforward answer, since I cannot grasp enough info from this chart to make a sound judgement. However, having the holding owning 100% of SKY Spirits LLc may be seen as an alert for the potential lack of decision-making autonomy, that is, one of the prerequisites for being an azienda.
1)Explain the concept of separation between ownership and control and analyze it in Campari group.
ReplyDeleteThe cash flow rights measure the ownership of a firm, while the voting rights measure the control over it. The smaller are the votes using for control a firm, higher is the separation of ownership and control.
Having the control of a company means have the ability to elect the majority of the board of directors, de jure control. In a pyramid business group as Campary, is a situation in which a parent holds more than 50% of the voting rights of a subsidiary. Instead de facto control exists when the parent holds less than 50% of the subsidiary’s voting right but are sufficient to dominate the shareholders meeting and manage the subsidiary according with the parent’s wishes. Observing the entity legal map we could observe that Davide Campari fully own almost all of its subsidiaries apart from International Marques V.o.f. Olanda that is owned for 33.3% and the Kaloyiannis Koutsikos Distilleries Sa Grecia (75%). So apart from International Marques V.o.f. Olanda,
Davide Campari s.p.a. has de jure control of all its subsidiaries.
Said that Alicros s.p.a owns the 51% of Davide Campari so it has de facto control of all the group.
Alicros is owned by Rosa Anna Magno Garavoglia and his son Luca Garavoglia is the Davide Campary’s Ceo, that means that there is no separation between ownership and control in the parent company and that control is substantial and not just formal.
2) If Alicros S.p.a orders to International Marques V.o.f. Olanda to sell goods to Kaloyiannis Koutsikos Distilleries Sa Grecia at a higher price than the market price. Is that tunneling or propping? Why?
Since Davide Campari onws the 33.3% in International Marques V.o.f. Olanda and 75% in Kaloyiannis Koutsikos Distilleries Sa Grecia and in this case there will be more money than expected under market conditions in a group’s company with less share, for sure this transaction can not be defined as tunneling while it could be propping in the case in which International Marques V.o.f. Olanda is in a situation of financial disaster. So it will be in the interest of the group to help it.
Anyway, according to the group perspective it is very difficult evaluate each transaction, as efficient or potential harmful in an isolated view; could be more useful valuate it in a wider perspective that means considering the group in a comphrensive way and within a specified time horizon.
(1) Has Campari Group a pyramidal structure? Which are the risks related to this structure? And reading chapter 8, is it in line with the Italian Institutional background?
ReplyDeleteA pyramid structure is defined as a business entity comprising of a group of companies whose ownership structure displays a top-down chain of control. In such a structure, the ultimate owner is located at the apex with successive layers of firms below. Following this definition and looking at the legal entities map, we can recognize this structure in Campari group. Moreover, there are two other "criteria" to be satisfied to define a group as pyramidal one: there must be an ultimate owner; there must be at least one publicly traded intermediate company. These are both satisfied in Campari group. The risks are related to the fact that a pyramidal structure implies a high separation between ownership and control. This leads to the risk of expropriating actions like tunneling.
Looking at the Institutional background in Italy, we can see how Campari is aligned with the italian "trend": it has a pyramidal structure managed by a family via a complex chain of holding companies and it presents a high ownership concentration.
(2) Is it possible a hostile takeover against Campari? And a friendly takeover?
A hostile takeover is not possible in this case. This because Campari is controlled by Alicros with a 51%, the minimum cut-off to define a "de jure control". A hostile takeover is possible only in the case of "de facto control". Instead, in this case would be possible a friendly takeover. In this last case, a public offer of stock or cash is made by the acquiring firm and the target firm can whether or not approve it. In the hostile takeover there is not the consensus of the "target firm".
+ You are an external investor and you know that the holding company Davide Campari has ordered Sella & Mosca to sell goods to Camargen Srl at a price that is lower than the market price. How do you interpret such transaction?
ReplyDelete− Tunnelling is defined as the transfer of assets and profits out of firms for the benefit of their controlling shareholders. So this defined as ‘tunnelling’.
1) Looking at the entity map of Campari Group, is there any separation between the control and the direction of the subsidiaries? As it can be seen by the map, in particular the percentages about the directs over the cash flow, there is not autonomy for the subsidiary firms because (de jure) Davide Campari owns at least the 75% of the CFR except for the International Marques V.O.F. (Dutch) where the percentage is about 33,3% that it could be thought to be a control situation (de facto) as well.
ReplyDelete2) Looking at the definition on La Porte et al. (1999) is it the Campari’s one, a pyramid ownership structure? Yes it is because, by the definition of the previously mentioned author, it has an ultimate owner and there is at least one publicly traded company.
2) Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer
ReplyDeleteQ: If “Alicros” is controlled by the Ministry of Economy, who is the ultimate controlling party of Redfire Inc?
A: the ultimate controlling party must be a natural person, thus an individual or a group of persons. This means that the ultimate controlling party of Redfire Inc is the Minister of Economy.
Q: Is it possible to know if the dominant shareholder separates the control from the direction activities?
ReplyDeleteA: Yes, because according to the Italian Regulation subsidiaries have an obligation to disclose if they are directed and coordinated by their parent company. The Article 2497 of the Italian Civil Code recognizes the legitimacy of management and coordination of the holding company in the management of the companies belonging to its group. The directing company, when directing the directed companies, should be responsible to minorities shareholders and creditors of the directed companies for the prejudice caused.
Can we consider Campari as a pyramidal business group? How can we interpret the direction activity using the efficient perspective?
ReplyDeleteCampari can be considered a pyramidal business group because the holding company at the top owns shares in subsidiaries, which in turn have subsidiaries. Furthermore, a pyramid is characterized by the presence of an ultimate owner (Garavoglia Family through Alicros S.p.a.) and at least the presence of a publicly traded company between it and the ultimate owner in the chain of 20 percent voting right, as the case of Davide. Campari is listed on the Italian Stock Exchange since 2001. We can interpret the direction activity of the holding company Davide Campari over its subsidiaries following the efficient perspective. According to this perspective, the direction activity is implemented as favourable to the firm and its outsiders. It’s implemented in order to reduce or remove important transaction costs.
Using the Stewardship theory how should be composed the board of directors of Davide Campari?
According to the Stewardship theory, managers are not motivated by individual goals but are stewards whose motives are aligned with the objectives of their principals. Furthermore, because inside directors spend their working lives in the company, they are able to understand the businesses better than outside directors so it’s better having a majority of inside directors, motivated to maximize the organizational performance. Moreover they suggest Ceo Duality (the Chairman and Ceo roles played by the same person), since it increases the unity of command that reduces uncertainty and provides more focus of the goals and objectives.
Question n°1: Using the legal entity map of Campari group (see Blog VII) and the content of this Chapter you have to post at least one question and the connected answer.
ReplyDeleteQ: How would be interpreted the direction activity in Davide Campari group under the opportunistic and the efficient perspectives?
A: The opportunistic and efficient perspectives are two ways to interpret and understand the decision-making power over the subsidiaries. The former regards the likelihood that the controlling shareholders (Alicros S.p.A.) has the incentive to stray the resources at the expenses of minority shareholders (Cedar Rock Capital Ltd, Morgan Stanley Management Inv. Ltd and Independent Franchise Partners Llp) whereas the latter involves the fact that the Campari business group is perceived as a firm network.
Moreover the opportunistic perspective hinges on the agency theory and requires the examination of the several interests of the group: the Davide Campari holding, the sub-holdings Sella & Mosca, Campari do Brasil Ltda, Redfire Inc.,Di.Ci. E. Holding Bv. and the whole group.
For instance Campari Group could undertake a tunnelling practice: the insiders direct Campari group assets merely to themselves for personal gains. This would harm the minority shareholders and the business as a whole.
On the other hand in the efficient perspective the direction activity is perceived as advantageous to the group and to outsiders as well to the entity, therefore all the decision made and the operational actions undertaken are favourable both to insiders and outsiders. Thanks to the vision of the business group as a single economic entity, a reduction (or under certain circumstances the removal) of transaction costs occur.
Question n°2: Using the legal entity map of Campari group and the content of the previous Chapters you have to post at least one question and the connected answer.
ReplyDeleteQ: Compute the voting rights and the cash flow rights Independent Franchise Partners Lip has over Societe Civile du Domaine de Lamargue and explain the results.
As far as the voting rights are involved, Independent Franchise Partners Lip has not any significant voting right; in fact the minority shareholder of the Campari group has not control over this subsidy nor over Sella & Mosca or Davide Campary: the ultimate owner is Alicros S.p.A., and the latter is the only Company that can carry out a de jure control over Davide Campari.
On the other hand when it comes to cash flow rights, the computation is the following: 2,02%*100%*100%=2.02%.
Using the legal entity map of Campari group (see Blog VII) and the content of this Chapter you have to post at least one question and the connected answer?
ReplyDeleteif campari group is an Italian company, Does the controlling shareholder, through the parent company at the top of the pyramidal group, always exercise the direction activity of the subsidiaries? i found this question from the research question raised in the professor note. and the answer also there, which is based on the professor research A high percentage of sample declares not to be directed by the parent. However, the presence of the family members on the subsidiaries’ boards and the low boards’ independence makes the separation between control and direction more apparent than real. The credibility of the separation is questioned mostly for those non-directed subsidiaries that operate in the same sector.
• What about the theory of “Compensation advantages” in the case of Campari Group?
ReplyDeleteWe know that, according to this theory, the parent company’s decisions can have a positive attribute due to the benefits arising from intra-group transactions that could be taken in order to gain an overall advantage for the whole group. In this point of view, intra-group transactions, rather than being considered as means of expropriating minority shareholders benefits, are considered a way to better make the financial situation of a subsidiary in case it is facing a financial distress. For example, if Alicros company asks to CISC Odessa to sell Campari Schweiz goods at a lower price, this situation will relieve Campari Schweiz, it will make the interest of the whole group and finally it will exclude the liability of the parent company because the benefits of this transaction are greater than the damages incurred in the single subsidiary.
• Analyze the Campari Group under art. 2497 of the Italian Civil Code.
The article 2497 of the Italian Civil Code refers to the liability of the parent holding company that both controls and directs the subsidiaries over the directed legal entities for damages incurred by the subsidiaries themselves. What does it means:
If Alicros asks to International Marques to sell goods at a lower price than the market to Campari France, Alicros would be liable with the outsiders (minority shareholders and creditors) of the subsidiary International Marques.
But if Alicros states that the transaction is functional to the relieving of the financial distress suffered by Campari France by demonstrating that the transaction is in the whole group interest, Alicros would not be liable for any damage.
1) How would be interpreted, by opportunistic approach, Campari’s direction activity if Davide Campari order to “International Marques” to buy Brazilian products from “Campari do Brasil Ltda”?
ReplyDeleteThe answer to this question might depend on the theoretical framework we use to analyse such situation. In general, we might use opportunistic or efficient perspective, but here we will just consider the former. According to opportunistic perspective, such activities are seen as a way (potential) used by insiders of Davide Campari to extract benefits from International Marques. In particular, this activity might be seen negatively because there is an exchange of resources from a company controlled indirectly with the 33.3% to another controlled with the 100%. This might mean that this activity has been performed in order to move resources (through a sale) towards a company where Davide Campari has a higher percentage of cash flow rights!
1)Using the legal entity map of Campari group (see more ahead) and the content of this Chapter post at least one question and the connected answer;
ReplyDelete-Using the legal entity map of Campari group analyse the ownership and control.
-In the Campari pyramid business group we can see that the parent firm (Alicros) holds the 51% of the voting rights (that measure the control of a firm) and of the cash flow rights (that measure the corporate ownership) of the subsidiary (Davide Campari). Going forward Davide Campari controls almost any subsidiary by owning the 100% of the voting rights, except for the case of the subsidiary DI.CI.E Holding Bv Olanda that owns for International Marques V.o.f. Olanda the 33.3% and Kaloyiannis Koutsikos Distilleries Sa Grecia the 75%.
From the theory point of view this means that Davide Campari has de jure control of all its subsidiaries (accept for the two cases mentioned above) and the parent Alicros has de facto control of all the group (it owns less than the 50% of the subsidiary’s voting right). But taking in consideration that Rosa Anna Magno Garavoglia is the owner of the parent Alicros and the Davide Campary’s Ceo is her son (Luca Garavoglia ) we can conclude that there is no separation between ownership and control in the parent company.
2)Using the legal entity map of Campari group (see more ahead) and the content of the previous Chapters post at least one question and the connected answer (e.g. Chapter IV, using the agency theory how should be composed the board of directors of the listed holding Davide Campari?).
-Which are the voting rights and cash flow rights of Indipendent Franchise Partners Llp in Kaloyiannis Koutsikos Distilleries Sa Grecia?
-The Indipendent Franchise Partners Llp cash flow rights (corporate ownership) in Kaloyiannis Koutsikos Distilleries Sa Grecia are calculated multiplying the percentage of voting rights that Indipendent Franchise Partners Llp has over Davide Campari (2.02%), by the percentage owned by Davide Campari over Di.Ci.E Holding Bv Olanda (100%), and again by the percentage owned by Di.Ci.E. Holding Bv Olanda over Kaloyiannis Koutsikos Distilleries Sa Grecia (75%): 0,0202* 1*0,75= 0,01515. It means that Indipendent Franchise Partners Llp owns 1.51% of in Kaloyiannis Koutsikos Distilleries Sa Grecia cash flow rights.
The voting rights owns by Indipendent Franchise Partners Llp in Davide Campari are only the 2.02% and we know that that in this case there is high separation between ownership and control and as a consequence it has no explicit voting rights and control in Kaloyiannis Koutsikos Distilleries Sa Grecia.
1) You are an external investor and you know that the holding company Davide Campari has ordered to International Marques V.o.f. (Olanda) to sell goods to Campari France at a price that is lower than the market price. How do you interpret such transaction?
ReplyDeleteAs the Campari france buy the goods at a lower price they would have a financial benefits while expenses are for International Marques V.o.f. (Olanda). And since International Marques V.o.f. (Olanda) has only 33% of shares I believe that its transaction is a tunneling.
2) What type of agency problem is there in the Campari Group?
They are facing agency problem type 2 which is the conflict between the controlling shareholder and the minority shareholder , there is one of the owners has the effective control of the firm.