The Cutting Edge (TCE) is one of the world’s largest lawn mower distributors. TCE is concerned about maintaining an adequate supply of the economy-line mowers that it sells in its stores. TCE currently obtains its economy-line mowers from two suppliers. To ensure a steady supply of mowers, the management of TCE is considering the purchase of an ownership interest in one of the companies that supplies its mowers. More specifically, TCE wants to own enough stock of one of the suppliers to enable it to Exercise significant influence over the management of the company. The following is a description of the two suppliers.
The first supplier, Dobbs Incorporated, is a closely held company. Large blocks of the Dobbs stock are held by individual members of the Dobbs family. TCE’s investment advisor has discovered that one of the members of the Dobbs family is interested in selling her 5 percent share of the company’s stock.
The second supplier, National Mowers Inc., has widely disbursed ownership with no one single stockholder owning more than 1 percent of the stock. TCE’s investment advisor believes that 5 percent of this company’s stock could be acquired gradually over an extended period of time without having a significant effect on the company’s stock price.
Required
Provide a recommendation to TCE’s management as to whether it should pursue the purchase of 5 percent of Dobbs Incorporated, or 5 percent of National Mowers Inc. Your answer should be supported by an explanation of your recommendation.