Factors that Contribute to Successful Mergers and Acquisitions - Assignment Example

The merger of the two companies will lead to the growth of this small company by increasing the economic demand. Hershey Company will benefit from diversification. The risks of investments spread by adding other sectors. Secondly, KONZA Company has high liquidity. As the liquidity hypothesis stipulates, an increase in liquidity leads to an increase in mergers this is because it makes it possible for Hershey Company to acquire and finance the acquisition by use of resources (McDonald et al., 2006). KONZA Company faces a major threat of mismanagement of the firm’s resources by managers to maximize the shareholder's wealth.

Therefore, if the two companies merge, the resources would effectively manage to maximize the shareholder's wealth as well as the profit maximization of the company. The company again has its assets undervalued as compared to its market value. The merger would see to it that the assets are not undervalued when compared to market value. I would finance the takeover by selling the company shares. This is by public invitation to buy the shares at a premium from the shareholders of the company. This will enable the company to raise enough funds for growth and investments.

My second choice would have been Texas Company because the company has a high debt that is attractive and not used. This will be an avenue to merge as low leverage reduces the default risk and increases the debt volume for the joint company (Vachon, 2007). The company investments have a positive net present value (NPV) meaning that it can invest in and gain profits. The two companies therefore can merge and invest in projects that yield profits, as it is a major goal of the company. This company could not be the first choice because it is a bit stable and does not suffer from liquidity and mismanagement of firms' resources.

My third company would be INOVA Company which is stable, operating under ongoing concerns, and is large. The company would merge with Hershey to benefit from synergies. Financial mathematics shows that the combination of companies can yield more value than when they operate independently (McClure, 2012). Value (A) + Value (C) = Value (D) which is Value (3) +Value (4) =Values (8). Note that it is more than when evaluated separately as Value (3) + (4) = 7. The two companies would benefit from economies of scale which in turn leads to a low cost per unit hence reducing the costs of production.

This would not have been my first or second choice because the company has no major goal to merge, unlike the two companies that need to improve their stability and future existence. In conclusion, for the companies to merge they must meet the following criteria: a company must have a positive net present value and a negative present value leads to a loss. At least one company should have an increase in liquidity than others. A company should be in a position to mismanage the resources of its firm.

One of the companies should have a high-unused debt and finally, one firm should have an asset undervaluation.