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"If managers are rational, mergers should always lead to an increase in shareholder value. Discuss this statement in view of the relevant analysis of mergers and acquisitions"
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Scholars denote that a merger is just one example of an acquisition, and there are other methods that an organisation can acquire another organization.
These methods include purchasing of a company’ shares or even making an initiative to purchase all the outstanding stocks of the business targeted for acquisition. It is therefore important to understand that the main purpose of acquisitions and mergers is for the companies involved to gain an economic advantage (Custódio, 2013). For any transaction involving mergers and acquisitions to be justified, the net worth of the two organizations when combined must be more than when the two organizations did not merge, or were not together. This paper will identify the reasons as to why so many mergers and acquisitions usually fail, despite the advantages that these mergers and acquisition bring about.
Some of the advantages of an acquisition or merger include elimination of inefficiency, acquiring some tax advantages, achieving the benefits of economies of scale, and acquisition of complementary resources that can help an organisation to increase its market share (DePamphilis, 2010). Other major reasons for acquisitions and mergers include the ability to obtain proprietary rights to services and products, increasing the market share of an organisation through acquisition of the competitors of an organisation, and using the distributional channels of the acquired company to penetrate new markets, and geographic locations. All these advantages of mergers and acquisition must always be reflected in the growth of organizations shares, hence increasing the share value of an organization (Van Horne and Wachowicz, 2009). However, this is not always the case on most of the mergers that occur. This is because an acquisition and a merger is always a very complex procedure, and on most occasions, it is difficult for the managers to accurately evaluate the transactions, the benefits, the costs, and the
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Since the past decade, the globalisation of the businesses across the globe has initiated a search for the competitive advantage, worldwide. With the increased competition to fetch the customer satisfaction in a cost effective way, the companies have responded to the pressure of attaining scale in a quickly consolidating global economy
The acquisition of MBNA by Bank of America was never described as hostile. Bank of America even presents expanded opportunities for MBNA employees that plan explore in other expertise. One of the mot important aspects that resulted to positive integration on MBNA is respect.
As a part of corporate and management strategy; organisations tend to find alternatives creating more value by maximising shareholder wealth (King, Slotegraaf, Kesner, 2008 pp 24-45). The discussion aims at underpinning and analysing the role of mergers and acquisitions as a strategic mean of creating value and maximising shareholder wealth in comparison to the alternative organic growth.
Most companies carry it out to improve their business fortunes.
The terms mergers & acquisitions are generally used together or sometimes even interchangeably but there is a sight difference in the two terms. Acquisition takes place when one company becomes the owner of another company in a way that the company sold ceases to exist and the buyer company continues to trade its stock.
In a merger, the surviving firm acquires the assets and liabilities of the other firm(s). A relevant example here is the recent merger of HDFC Bank and Times Bank. After the merger, Times Bank will go out of existence and expanded HDFC Bank will continue to exist.
The current P/E ratio of the shares is 6.6 and the market price per share is 1.03. Since P/E ratio = market price per share/earnings per share (www.12manage.com), if the P/E ratio is to be 8 without affecting the earnings from the share, the value of the
lly starts through a series of informal discussions among the board members of the companies, following with formal negotiations, letter regarding the objectives, goal towards the company, acquisition or merger agreement and finally, executing the deal and transferring the
Also, some organizations’ corporate strategy is also defined by the way in which they carry out these transactions for their organization. For example, if a company is following a corporate strategy of growth and market
The MBNA culture was also accustomed to a level of perks. There was a company jet, a golf course, yachts, and high salaries. Conversely, Bank of America’s culture grew by thrift. In addition there were differences in terms of dress code, with MBNA having
Companies may also merge in order to overcome forces of competition by increasing economies of scale. Many companies have merged due to diverse reasons depending on their situations and market scenarios. This paper will discuss the merger that took place between the US airways
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