Hi, please help me to answer this question.

16. In class, we discussed two value reducing theories on mergers, i.e. (i) the agency costs of free cash flow theory (Jensen, 1986) and (ii) the managerial entrenchment theory (Shleifer and Vishny, 1989).

a) Discuss ONE of these two theories in detail. In your answer, mention what your chosen theory implies for the effects of acquisitions on the stock price of the bidding firm, the target firm, and the combined firm. (70 marks)

b) Suppose you are hired as a business consultant by a company. Your main brief is to make the M&A strategy of the company more aimed towards creating shareholder value, as the company has recently done a shareholder value-destroying deal. Based on your chosen theory (i.e. either agency costs of free cash flow OR managerial entrenchment theory), please make one specific recommendation to the corporate board of directors to bring the M&A strategy more in line with shareholder value maximisation objectives. (30 marks)