Advantages and Disadvantages of the Coca-Cola Company Merging with Other Firms within the Industry - Essay Example

Finance Module 5 SLP AssignmentNet Present Value, Mergers, and AcquisitionsIntroduction A business entity that wanted to expand would have a number of limitations depending on its legal form and ownership structure. In a sole proprietorship or partnership, the number and type of relationship between the owners is defined and limited by law. However a public limited company has a separate legal existence from that of its owners and its liability to the shareholders and creditors is also limited to their ownership stakes in the company.

That is why it is usually the most preferred form of business for expansion purposes. Mergers and acquisitions are the two usual ways in which ownership is extended in the corporate landscape. A business can either buy out the ownership rights of another company in exchange for cash or shares, or the two entities can merge their businesses to form a new company altogether. The first is called an acquisition and the second a merger. In this assignment, I will be considering the advantages and disadvantages of the Coca Cola Company merging with other firms within the industry.

Choice of Company to Merge With, and its Benefits My original chosen company for the SLP is the Coca Cola Corporation, USA. The company is a brand leader in its segment of business, with Pepsico USA coming second in terms of revenues and profits as well as worldwide sales and distribution. Both these companies have been famous for their innovative marketing and sales strategies and indulged in price and branding wars that have benefitted consumers as well as the whole industry. However in terms of branding and sales both Pepsi and Coca Cola have more than 200 brands each.

They jointly dominate the cola drink market so it is likely that the few other competitors in this segment would consider it a threat. I think they would appeal under the Antitrust Laws and Monopoly Act and would have a good chance of being successful. So much as I would love Pepsi and Coca Cola to merge- there may be legal deterrents against making this a reality. But if it were possible, it would result in a virtual domination of the cola beverage market, as it would form the biggest firm of its kind in the world.

The other possibility is to merge with a firm with complementary products, such as the Nestle Group. I would think that this merger stands a better chance of being successful legally. Nestle Fruit Juices, drinks, milk and yogurt products would likely be the more healthy complement to Coca Cola Corporation’s hot and cold cola and other beverages. Financing the Takeover and Reasons for this ChoiceAs regards financing the merger or takeover, if it were possible for Pepsi and Coca Cola to merge, I would exchange Pepsi shares for Coca Cola- because the Coca Cola Company is a larger corporation in terms of assets, sales revenues, profit earnings, market capitalization and also enjoys a higher share price on the stock market.

I would look to arrange the exchange price as the ratio of their share values on a given date, or analysts would be able to evolve a more complex formula depending on assets, liabilities, market share of products and sales. I would opt for a merger rather than a takeover. At present Coca Cola has a share value of $68.62 with over 6 million shares floated giving a market capitalization of $155.74 billion (Yahoo Finance Website, 2012). Pepsi has a share value of $63.14 with over 6 million shares floated giving a market capitalization of $98.

81 billion (Yahoo Finance Website, 2012). Yahoo Finance gives Pepsi an enterprise value of $120.44 billion as of 20 Feb 2012, while it gives Coca Cola an enterprise value of $170.79 billion as of 22 Feb 2012 on its website statistics. There is much to be said for the business acumen of both managements, and I would prefer a healthy coexistence of the best group of people putting their heads together on both sides, rather than one being subservient to another and the resultant difficulties in managing the overall business.

Either of these businesses is too large to be taken over by the other. Other Choices for Mergers As I have mentioned, either Coca Cola could buy out the Dr Pepper or Snapple Group, or merge with Nestle. However due to the synergistic difficulties, the merger between Nestle and Coca Cola may not look so appealing. So the better possibility that is legally admissible as well would be for Coca Cola to acquire the Snapple Group through purchase of its shares at an agreed price. Or simply a share exchange or conversion at an agreed rate could be arranged.

This would save much needed cash for the purchasing company. Dr Pepper has a share value of $39.21 and a market capitalization of $8.32 billion, with 1.6 million shares in flotation on the stock exchange. Its enterprise value according to Yahoo Finance website is $10.32 billion as of 22 Feb 2012 (Yahoo Finance Website, 2012). Self Assessment of Module 5 SLP Through this assignment I have learned not only about how mergers and acquisitions take place, but also when to go for each alternative, and also under what terms would it be most beneficial for each firm.

ReferencesYahoo Finance Website (2012). Key Statistics for the Coca Cola Company. Accessed on 22 Feb 2012 at http://ca.finance.yahoo.com/q?s=KO&ql=1Yahoo Finance Website (2012). Key Statistics for the Pepsi Company. Accessed on 22 Feb 2012 at http://ca.finance.yahoo.com/q?s=PEP&reco=1Yahoo Finance Website (2012). Key Statistics for Dr. Pepper Snapple Group. Accessed on 22 Feb 2012 at http://ca.finance.yahoo.com/q?s=DPS&ql=0