Mergers and Acquisitions

BBA0030 FORMATIVE ASSESSMENT

Question 3: What are the main benefits assumed to flow from a merger or takeover? Why do so many mergers and takeovers fail to deliver improved financial performance? Illustrate your answer with relevant financial case analysis

In the modern competitive business environment, it is not unusual for various industries to undergo a series of mergers and acquisitions as the business landscape undergoes some type of change. Often, an acquisition or merger is undertaken for the purpose of combining resources in order to provide a higher quality of goods and services to consumers. However, there is a significant difference between mergers and acquisitions general terms used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.

An example of a major merger is the merging of JDS Fitel Inc. and Uniphase Corp. in 1999 to form JDS Uniphase. An example of a major acquisition is Manulife Financial Corporation's 2004 acquisition of John Hancock Financial Services Inc. (http://www.answers.com/topic/mergers-and-acquisitions#ixzz1FuVjWLiR)

Firms are under increasing pressure to deliver Shareholder value and they not only have to make a return on capital employed but as a strategy, firms have to utilize the capital market as a mechanism to restructure the business in the interests of securing an even higher return of capital Employed. From mergers there comes the concept of net present value. NVP is the sum of the net cash flow or net income stream expected over a given time period. This net income is discounted by the capital cost or the expected rate of return against which initial cost of acquisition is subtracted. VOS, E & Kellcher, B, 2000 cites that < E Theoretically a company will inter into an acquision or merger agreement if they believe that the NVP (Company A + Company B> NPV...