1. Nibru Ltd is currently undergoing an equal access share buy-back scheme. The market price of Nibru Ltd is currently $12.00 per share, while the share price has been appreciating steadily in the past two years by an average of 15 per cent per annum. The off-market buy-back price was announced at $11.20 per share, where the capital component of the offer is $5.20 per share and a fully-franked dividend is $6.00 per share. Corporate tax rate is 30 percent. A hedge fund, Babylon City LLC, has become a shareholder in Nibru Ltd by acquiring a 4.5 percent ownership in Nibru Ltd over the past year. Babylon City LLC has also rejected participating in this buy-back scheme at the current share price. Babylon City LLC however made a counter offer to Nibru Ltd last Monday to tender all its shareholdings in Nibru Ltd at the price of $12.10 per share. Babylon City LLC has then been accused of green mail by Nibru Ltd management.

Discuss the following:

1. Outline possible reasons why Nibru Ltd management accused Babylon City LLC of green mail.
2. Advise a domestic retail shareholder (who has a marginal tax rate of 32.5 percent) and a superannuation fund (15 percent tax rate) whether either of them should participate in Nibru Ltds equal access share buy-back. Assume that shares in Nibru Ltd were bought by the retail investor and the superannuation fund more than three years ago at a price of $5.20 per share.

2. Explain how private equity has contributed to solving the sorting and incentive problems within investment practices.

3. Consider general partners in private equity funds. Briefly explain and discuss:

1. Their role;
2. How general partners and fund managers are remunerated.