Merger and Acquisitions - Research Paper Example

For Nvidia to acquire some other company or merge with some other formidable company to bring synergy in the operations, which cut down on operating cost, improve market penetration, or enhanced scale of operations could be a good choice. There are many companies that Nvidia may think of merging to increase the value of its stockholders; however, AMD will be a finest choice for merger over any other company. Nvidia’s old competitor ATI was acquired by AMD since then AMD has been most formidable competitor to Nvidia.

A good synergy can be achieved by merging these two companies. AMD'S revenue at $6.5 billion is almost double of Nvidia's $3.5. Operating margin is almost matching at 6.25%. Merger can bring about the cost cutting in managerial and other staff cost. Unnecessary competition in many product lines can be eliminated and better price realization can be achieved. Their mergers will better be able to face competition from much larger corporations such as Intel. In the process merged entity will have higher price-earnings ratio in the market place leading to higher share price.

(Investopedia.com) Answer 2. The AMD’s market capitalization is $5.25 billion, which is almost half of Nvidia’s market capitalization of $10.45 billion. . This is also known as Fixed-Shares Stock offered to the shareholders of the company being merged. Thus, the company also saves on taxes as no cash outgo has taken place. The basis of ratio could be a current market price. This would not make any financial burden on Nvidia and merged entity would have increased outstanding shares with enhanced revenues and profits.

It may happen that initially Nvidia share price may move southward but within 2-3 quarters when synergistic effects start percolating on the merged entity, price of Nvidia will start moving up fast. The agreed ratio will have some effect on price of AMD share but that will get stabilized soon. (Expectationinvesting.com) Answer 3. There are some other companies that can be merged with Nvidia as second or third choice for mergers. Gaughan, (2001) has rightly pointed out that merger should be able to integrate the operations of both the companies, otherwise it would be simply a leveraged buyout and that may fail to bring any effective outcomes that are envisaged with any merger.

Xilinx Inc. (XLNX), a California based company, being in the allied field and complementary to the Nvidia’ business line could be a good choice for merging with the Nvidia. Xilinx Inc., offering programmable logic solutions in the form of advanced integrated circuits, could provide a good fillip to Nvidia in terms of business growth and can bring some level of synergy into certain functionality. Xilinx Inc., with market cap of 8.91 billion and operating margin of 34% that generates operating cash flow of 724 million in 12 months is a cash rich company to merge with Nvidia.

(Source: http://finance.yahoo.com) Microchip Technology Inc. (MCHP) is