FIN501 MoD 5 cse Assign - Essay Example

FIN501 MoD 5 Most mergers and acquisitions do not succeed because critical success factors are overlooked. This paper analysescompanies within the Energy and Petroleum sector to choose the best company that Cobalt International Energy can merge with. The paper also evaluates financing options and recommends the best financing options that can be used in the merger between Cobalt International Energy and Frontier Oilfield Services Inc. Analysis of what would be second and third choices for a merger is also done.

Finally, a summary and evaluation of what has been learnt in Module 5 SLP is also included in this paper. Frontier Oilfield Services Inc. would be the company to merge with Cobalt International Energy. This is because Frontier Oilfield Services Inc. offers saltwater disposal and oil and gas transportation services (FOSI, 2013). Consequently, the company will meet the needs of Cobalt International Energy by providing salt water trucking and disposal services (FOSI, 2013). These complementary services are essential to Cobalt International Energy, which is in the Energy and Petroleum sector.

Frontier Oilfield Services’ financial strength and market insight will lead to superior performance in the Energy and Petroleum sector, if a merger involving the two companies is formed. Frontier Oilfield Services is ideal for a merger with Cobalt International Energy, compared to ENSCO International Inc. and Brigham Exploration Company. ENSCO International is an oil exploration and production company (Rigzone, 2013). On the other hand, Brigham Exploration Company deals with oil and gas exploration (OGFJ, 2013).

These companies do not have objectives, organizational culture and mission statements that are similar to those of Cobalt International Energy. However, Frontier Oilfield Services Inc.’s portfolio is complementary to that of Cobalt International Energy. This means that a merger between the two companies will allow the companies to pool their research and development funds to achieve more sales and build a strong marketing force. Complementary resources lead to effective mergers so that the resources of the target and acquiring firm are different, yet mutually supportive (Hitt, Harrison, & Ireland, 2001).

This merger will be financed through a loan. Therefore, Cobalt International Energy will have to seek a loan from either a financial company or a bank. This loan should be long term. Most lenders will always seek to make secured loans, whenever possible (Kirchner, 2009). Since Cobalt International Energy’s assets are sufficient to secure a loan, a long term loan can be a better financing method, compared to bonds. In case, Cobalt International Energy opts to raise finance through bonds, it might not be successful because the process requires numerous regulations.

Secondly, Cobalt International Energy can sell all or some of its shares to the members of the merging company. This method of funding the takeover will be beneficial because Cobalt International Energy can either decide to sell all or some of its shares. It will also have access to finance, and can repurchase the shares at a later date to reverse the takeover (Millichamp, 2000). As much as Cobalt International Energy has not started making sales, its shares are trading in the stock exchange, and can be used in financing a merger with Frontier Oilfield Services Inc.

The second company of choice for a merger with Cobalt International Energy is Integrator de Perforaciones y Servicios (IPS). IPS is a Mexican company that offers oil and gas and geothermal wells drilling solutions (Rivas, 2010). The company’s business involves national and foreign partnerships. Its key personnel have more than a quarter century of experience, both in Mexico and abroad. This experience is based on the development of well drilling. The company is well positioned and supplies drilling tools (Rivas, 2010).

Forming a merger with this company will be beneficial because of its international network with foreign markets, which will lead to greater marketing opportunities. The company will also provide the expertise required in oil drilling. The complementary nature of its services will also be extremely beneficial in a merger with Cobalt International Energy. The third company of choice for a merger with Cobalt International Energy is Grupo Diarqco. Grupo Diarqco offers detailed engineering for onshore pipelines for oil, nitrogen and natural gas services, among other services such as construction of infrastructure (Rivas, 2010).

It is a small integrated company, but well positioned in the Marine Region. A merger of Cobalt International Energy with Grupo Diarqco will result into increased sales because the latter is well positioned in Mexico. In addition, Grupo Diarqco will provide pipeline services for oil that will be mined by Cobalt International Energy. In the carrying out this analysis, I have learnt and mastered the two, listed outcomes. These outcomes are explaining and discussing financing options for financing mergers and acquisitions, and identifying success factors in mergers and acquisitions.

I have learnt about the various motives for mergers, sources of merger gains and financing. For instance, according to Broyles (2013), mergers and acquisitions can be financed through bonds, shares and convertibles. The financing methods can also be long term or short term, according to Walter (2004). I have also learnt in Module 5 SLP that financing sources can be either external or internal. External financing options are expensive, compared to internal sources because of the transaction cost involved (McCarthy & Dolfsma, 2013).

Factors such as complementing portfolios and strong financial positions are some of the key success factors in mergers and acquisitions, as learnt in Module 5 SLP. It is imperative to understand the motives of mergers and acquisitions. Therefore, with the aid of Module 5 SLP, it is possible to understand and master the success factors in mergers and acquisitions. Various companies make various considerations when choosing firms to merge with to ensure success because most mergers and acquisitions do not succeed because of haste or overlooking of critical factors.

In addition, financing options for mergers and acquisitions need to be analyzed carefully because wrong choices of capital sources will lead to serious business implications, later. References Broyles, J. (2003). Financial Management and Real Options. Chichester: John Wiley & Sons Press. FOSI. (2013). Frontier Oilfield Services Inc. . Retrieved from http://www.frontierosi.com/ Hitt, M. A., Harrison, J. S., & Ireland, R. D. (2001). Mergers & Acquisitions: A Guide to Creating Value for Stakeholders.

New York: Oxford University Press. Kirchner, T. (2009). Merger Arbitrage: How to Profit from Event-Driven Arbitrage. Chichester: John Wiley & Sons Press. McCarthy, K. J., & Dolfsma, W. (2013). Understanding Mergers and Acquisitions in the 21st Century: A Multidisciplinary Approach. Basingstoke : Palgrave Macmillan Press. Millichamp, A. H. (2000). Finance for Non-financial Managers. London: Continuum Press. OGFJ. (2013). Brigham Exploration Company. Oil and Gas Financial Journal, pp.1-4. Rigzone. (2013). ENSCO International Incorporated.

Retrieved from http://www.rigzone.com/news/company.asp?comp_id=17 Rivas, S. F. (2010, April). Major Oil and Gas Contractors, Suppliers and service Companies in Mexico. Retrieved from http://www.intsok.no/style/uploads/doc/CountryReports/Mexico-Major%20Oil%20and%20Gas%20Companies%202010.pdf Walter, I. (2004). Mergers and Acquisitions in Banking and Finance: What Works, What Fails and Why. Oxford : Oxford University Press.