TABLE OF CONTENT;
This assignment is compress of part A and B. Part A will be talk about the Mergers and Acquisitions how they can be value creators or value destroyers, defining the meaning of mergers and acquisitions, the motives of mergers and acquisitions.
What is Merger and Acquisitions?
Mergers and Acquisitions are the corporate finance areas of management and strategy that deals with the buying and or joining with another company. In mergers, two or more organisations are join together to become a new organisation and usually changing the name of the organisation and give it a new name. Due to the typically of the similar size of the companies that are involve, the term Mergers of equals is always used. On the other hand, acquisitions is one of the organisations that will be purchase in second and generally a smaller organisation will be absorbed in to the present organisation, or it will run as a subsidiary. Any company which is under consideration by other organisation for a merger or acquisitions is refer as a target. (rechteg 2004).
Motivations of Mergers and Acquisitions;
The dominant rational used to explain Merger and acquisition activity acquiring firms that seek to improved financial performance.
The following motives are considered to improve financial performance.
• Synergy---- refers to the fact that the join companies can often reduce it fixed expenditure by removing the duplicate department or operations to lowering the cost of the company relatives to the same revenue stream to increase the profit margin of the company.(nug.com)
• Increase market share or revenue---- this refers that the buyer will be absorb a major competitors and this will increase it market power to set prices.(nug.com)
• Cross selling---- for instance, a bank buy, a stock broker could then sell its banking products to the stock broker customers, while the broker can sign up the bank customer for brakeage account, or a manufacturer can acquire and sell complementary products.(nug.com)
• Economic of scale--- for example in managerial economies such as the increase opportunity of managerial specialization. Another example is that the purchasing economies increase the order size and associate in bulk buying discount.(nug.com)
• Geographical---- this is design to silk the earning result of the company over the long term smoothens the stock prices of a company which given conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders.(nug.com)
• Taxation--- A profitable company can buy a loss maker to use it target loss as their advantage by reducing their tax liability. In the united states of America and many other countries, the rules are in place to limit the ability of profitable companies to buy loss making companies to limiting the tax motive of the acquiring company.(nug.com)