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Chamberlin & Castings Plc Finacial Management - Essay Example

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Takeover of Chamberlin Plc by Castings Plc Introduction The word takeovers and mergers are interchangeably used because two (rarely more than two) existing companies are combined to form a new entity with a view to enhance the shareholder value in the long run…
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Chamberlin & Castings Plc Finacial Management

Download file to see previous pages... A takeover could be hostile and resisted by a company. This distinction is important with regard to valuation of the businesses and management of risk. The valuation of the Companies proposed to be merged is: 1st company: Castings Plc. Valued at ?85 M 2nd company: Chamberlin Plc. Valued at ?40 M The paper seeks to study Mergers and Acquisitions (M&A), the justifications for takeover/merger, rationale applied for target identification and financial justifications for the proposal and make an analysis of the proposal. I - Mergers and Acquisitions The advantages of M&A in meeting the Challenges of strategic development perhaps mainly rest on the ability it gives the companies to grow fast in a rapidly changing business environment. For instance, expansion into new products and new market areas through M&A process is simpler and faster compared to organic growth which could be slow in reacting to the external developments, consequently seizing the opportunities. On the other hand, the governments place restrictions on M&A though competition laws, for example Competition laws in European Union and Antitrust Laws in the US. Correa (2007, p. vii) states “While IP law deliberately subjects intellectual assets to the exclusive control of right owners, competition law seeks to avoid market barriers and benefit consumers by encouraging competition among a multiplicity of suppliers of goods, services and technologies”. ...
one trillion.” After the collapse of junk bond market which has fueled M&A in 1980s, the increase in the M&A activities have started again and reached a phenomenal level in 1990s. These mergers were horizontal in nature in the field of oil, telecommunication and financial services mainly in the US. M&A activities follow a wave pattern and Johnson, Scholes & Whittington (2008, p. 349) state that the worldwide announced deals declined rapidly after 2000 (falling by nearly 30% in 2002 to about 25,000 deals). Justification for takeover strategy Corporate companies have been adopting Mergers and Acquisitions as a strategy for growth. M & A have been necessitated due to various reasons such as inorganic growth, cost reduction, access to technology, growth in market share, synergy in the operations, capacity utilization, entry into new markets, competition, need for capital, weakness in the capital structure of one of the merging company, tax considerations, brand value and stability in the operations. Rao (2009), states that the losses can also be carried forward indefinitely for relief against future income from the same trade Under UK Laws. The companies can explore the possibilities of taking advantage of this provision, through proper legal structure of the combined entity so that the accumulated losses could be set-off against the profits after merger. Relative valuation of the assets of a company and the general economic conditions can make the takeover proposal more attractive on a global basis. The revival in the US economy and the growing economic power of BRIC (Brazil, Russia, India and China) countries make the assets in the UK engineering sector attractive. Hochberg (2011, p. 23) predicts that M&A activity [in engineering sector] will increase in 2011 as the ...Download file to see next pagesRead More
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