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2. Merger activity is greater during economic expansions than during contractions, and mergers are more likely in bull markets – markets in which share prices are rising and lots of buying is going on. However, unless we believe that companies purchase other companies just because they are in a position to do so, this alone cannot explain the phenomenon.
I believe that merger waves occur as the result of industry shocks (regulatory changes, technological developments, etc.). However, mergers can only happen if there is liquidity in markets and capital is easily available, so this is the reason we see mergers primarily during times of economic prosperity. Industry shocks and economic conditions that lead to bull markets can also be reason for companies to spin off or seek out different divisions in order to adjust to new market environments. These factors together are what drive mergers and cause them to occur in waves.
3. Horizontal mergers are likely to create value for shareholders because they combine firms in the same industry, thus the opportunity for synergies is very high. As competition decreases, market share and pricing power increase. Horizontal mergers often create economies of scale, allowing companies to offer the same product at a lower production cost.
4. The acquiring company is forced to compete against other firms, which drives down the gains that its shareholders can realize from the deal. At the same time the shareholders of target companies benefit from the competition, receiving higher bids for their firm.
5. It is difficult when acquiring intangibles, such as intellectual capital, to motivate employees of the target to stay on post-merger. Employees of the target may feel alienated or threatene...
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...ffer of $3,000,000/1 million shares = $3 per share. Compared to the current price per share of $2.50, this represents a 20% premium. The price per share of XYZ upon the announcement will therefore be $3, and the price per share of ABS upon the announcement will be $20 – 20% x $2.50 = $19.50.
b. The share price of ABC would equal the share price of the combined companies, which can be calculated by ($20 + $2.50)/1.15 = $19.57. The share price of XYZ would be 0.15 x $19.56 = $2.94. The premium is therefore $2.94/$2.50 = 17.38%.
c. No, this does not mean that my answers need to be identical. The actual premium in the stock offer is lower because market prices adjust to show that ABC shareholders are paying a premium to XYZ. The announcement in part B would cause the stock price of XYZ to increase and the stock price of ABC to decrease, so the premium goes down.
Leadership succession in a merger of equals is an article, which examines the implications of leadership succession in an extreme form of mergers, a merger of equals, can yield important findings to better understand what allows some mergers to succeed while others fail (Cheng, 2012). Mergers and acquisitions are much more common these days and only a few of them end up being successes. Even though mergers and acquisitions do not result in much success rate, many organizations still prefer it because, it is used as a cooperative strategy but nowadays it is used for cooperative development. Cultural differences and merger integration can be considered as an important factor in the failure rate, but this study mainly focused on the choice of leadership succession and merge of equals. Mergers of Equals Mergers of equals is the combination of two organizations of similar size to form a single organization.
Lewin’s model involves three stages of change, unfreezing, changing, and refreezing. In order to successfully merge both companies this model has five steps. First is learn and unlearn, by doing so you are clearing current habits of both companies to create and mold new ones. The second step is to motivate change. Next, is requiring people to change. Without employee change, no organization will move forward. Following is resistance and reinforce, one has to provide positive reinforcement. By doing so, it guides and motivates employees to follow through with the changes.
Based on the information in the case, Pepsi could invest US$360 million in exchange for 30% equity of Deltex. So we have to calculate the value of 30% equity of Deltex. First, we calculated the discount factor by using average unlevered beta of US independent bottlers, US 10 year Treasury bond as risk free rate and assuming market risk premium 10%. We came up with 9.83% of WACC. Next, we calculated Deltex free cash flow and terminal value and then converted them into US dollar value. Now with WACC and total cash flow, we had NPV of the company. So we deducted current debt from NPV and came up with the value of US$360M investment equal to 59.99% of Deltex equity. So the proposal to buy 30% of Deltex with US$360M is too expensive to PepsiCo and not attractive to PepsiCo.
Gaughan, P. A., 2002. Mergers, Acquisitions, and Corporate restructuring. 3rd ed.New York: John Wiley & Sons, Inc.
The purpose of this paper is to attempt to recompile information about the merger of two corporations; one of many taking places i...
The Meaning of Vertical and Horizontal Integration Horizontal integration is where an organisation owns two or more companies, on the same level of the buying chain. An example of this is the First Choice Group; they own First Choice Travel Agency and First Choice Hypermarket, both of which are on the same level of the buying chain. The advantage of horizontal integration is that it can increase the company’s market share. Another good example of this type of integration is when EasyJet purchased the airline Go from British Airways. Now EasyJet and Go both operate under the company name of EasyJet.
Essentially the critics presented 2 arguments against the acquisition of NBC universal by Comcast. Firstly they proposed the competitive harm from a Vertical Transaction. A vertical merger can harm competition by facilitating exclusion or collusion. Free Press argued that Comcast’s collaborative effort with NBC would stifle competition in online video (TV Everywhere model) by restricting where, the vast amount of “must-see” NBC-owned content can be offered, and charge higher rates to television providers for accessing NBC-owned networks. Thus rising to the level of an antitrust violation by way of intentionally discouraging competition and acting as concierge to content on the Web.
Consolidation is a key word being used by many in the Fire Service today. Whether it is consolidation of equipment, manpower, stations, or just Standard Operating Procedures (SOP's). The reason for this change is due to the economic slowdown that we are all currently facing on every level, personal, business, and governmental. When this occurs the tax payers start to look at how their tax dollar are being spent. To assist in spending those tax dollars wisely the fire service has begun to investigate how to consolidate without losing services.
Mergers are the point at which two organizations join their hierarchical structures and business operations together. This is done if both organizations will get a greater number of advantages from working together than they would have done by living up to expectations independently. A few organizations merge with a specific end goal to stay in business while others resign from the business all together not to go bankrupt. Horizontal mergers are as a rule between two business organizations from the same business that give the same service or offer the same item. The business' that merge horizontally used to act as competitors and with a specific end goal to take out the opposition the stronger of the two will offer to purchase out the other.
In speaking with her staff, Anne needs to set very clear and obtainable goals to help motivate her employees. Kreitner and Kinicki (2010, p. 228), in speaking about how goals regulate effort, state that “Not only do goals make us selectively perceptive, they also motivate us to act…Generally, the level of effort expended is proportionate to the difficulty of the goal”. With this in mind, she should set challenging goals, and lead her organization to accept the merger with motivation.
As the business, people put it, to maximize the wealth of shareholders (Peavler, 2016). This could be done by pursuing more of an immediate reason that will realize the shareholders wealth maximization goal. However, this main reason may fail to be realized as most mergers depict negative results.
Mergers and acquisitions immediately impact organizations with changes in ownership, in ideology, and eventually, in practice. There are multiple reasons, motives, economic forces and institutional factors that can, taken together or in isolation, influence corporate decisions to engage in mergers or acquisitions. The financial risks of merging with or acquiring an organization in another country and how those risks can be mitigated are important issues for corporations to conduct research on. This paper will examine the sensible and dubious reasons for mergers and acquisitions and the benefits and costs of the cash and stock transactions.
A forward vertical merger is where a business merges with a business at the next stage of the production process, for example a business making furniture may merge with the retail outlet selling the furniture. Backward vertical merger is where a business merges with a business at the previous stage of the production process, for example the business making the furniture may merge with the business that supplies the wood and parts for the furniture. A lateral merger is where a business merges with a business who makes similar goods to it but who are not in competition with each other, for example if a chocolate bar manufacturer merged with a luxury chocolate manufacturer. Corporate mergers occur when two companies combine. In some cases both companies want to merge.
... find the discount rate of 9.8767%. Through the new discount we calculated the new share price of $56.81. The initial share price was $63.50, which was undervalued by $21.41 per share but because of the revised discount rate we find that the share price is undervalued by $14.72 per share.
When entrepreneurs plan their business future they will consider how they can increase their business size or profit in a short period. Entrepreneurs may consider growing their business or company by using a merger or an acquisition. These methods can be a speed up tool and a short cut to enlarge their business. (Burns, 2011) Also they can reduce competition, make it easier for entrepreneurs to think about the market and product development and risk reduction. Furthermore, some lesser – known companies can improve their firm’s image and market power by using merger and acquisition with larger firms. However, there may be risks associated with merger and acquisition related to lack of finance and time. (Burns, 2011) This essay will discuss more deeply the advantages and disadvantages of using mergers and acquisitions, showing how it can affect firms and market with the case study.