MERGERS AND ACQUISITIONS

Mergers and Acquisitions

Mergers and Acquisitions

Part 1

Question A

When one business concludes to come by another business, a sequence of discussions will take location between the two companies. The obtaining business will have a well-developed negotiating scheme and design in place. If the Target Company accepts as factual a amalgamation is likely, the two businesses will go in into a "Letter of Intent" (Jasch, 2001, 66).

The Letter of Intent summaries the periods for future discussions and commits the Target Company to giving grave concern to the merger. A Letter of Intent furthermore devotes the obtaining business the green lightweight to proceed into Phase II Due Diligence (Mishra, 1999, 45). The Letter of Intent endeavours to response some matters in relative to the suggested merger:

1. How will the acquisition cost be determined?

2. What precisely are we acquiring? Is it personal assets, is it a commanding concern in the goal, is it thoughtful capital, etc.?

3. How will the amalgamation transaction be designed? Will it be an outright buy of assets? Will it be an exchange of stock?

4. What is the pattern of payment? Will the obtaining business topic supply, yield money, topic remarks, or use a blend of supply, money, and/or notes?

5. Will the obtaining business setup an escrow account and deposit part of the buy price? Will the escrow account cover unrecorded liabilities found out from due diligence?

6. What is the approximated time border for the merger? What regulation companies will be to blame for conceiving the M & A Agreement?

 

Question B

Every amalgamation has its own exclusive causes why the blending of two businesses is a good enterprise decision. The inherent standard behind amalgamations and acquisitions (M & A) is simple: 2 + 2 = 5. The worth of Company A is $ 2 billion and the worth of Company B is $ 2 billion, but when we amalgamate the two businesses simultaneously, we have a total worth of $ 5 billion (Romano, 2001, 45). The connecting or amalgamating of the two businesses conceives added worth which we call "synergy" value. Synergy worth can take three forms:

Revenues: By blending the two businesses, we will recognize higher incomes then if the two businesses function separately.

Expenses: By blending the two businesses, we will recognize smaller costs then if the two businesses function separately.

Cost of Capital: By blending the two businesses, we will know-how a smaller general cost of capital.

For the most part, the large-scale source of synergy worth is smaller expenses. Many amalgamations are propelled by the require to slash costs. Cost savings often arrive from the elimination of redundant services, for example Human Resources, Accounting, Information Technology, etc (Brigham, 1989, 54).  However, the best amalgamations appear to have strategic causes for the enterprise combination. These strategic causes include:

Positioning - Taking benefit of future possibilities that can be exploited when the two businesses are combined. For demonstration, a telecommunications business might advance its place for the future if it were to own a very broad band service ...