The And Long Term Shareholder Wealth Effects Of The Acquiring And Target Firms

This paper is about two companies that went through same type of change (merger and acquisition) with different outcomes. Merger is combination of two or more companies in which the assets and liabilities of the selling firms are absorbed by the buying firm. Although the buying firm may be a considerably different organization after the merger, it retains its original identity while Acquisition is the purchase of an asset or an entire company (Sherman, A. J., & Hart, M. A. (2005). Chapter 1: The Basics of Mergers and Acquisitions. In, Mergers & Acquisitions from A to Z. American Management Association International.).

While some studies show there may be little or no improvements in the post acquisiton operating performance of merged banks, M&As do create value. This is observed by the positive or negative reactions of stock prices during M&A announcements (Isa & Yap, 2004) (Campa, 2004) (Drymbetas & Kyriazopoulos, 2014). Most studies find that cumulative abnormal returns occur in the days following or prior to the announcement date (Andrade et al., 2001).

In regards to acquisitions, it is important to distinguish between mergers and acquisitions. In a merger, two companies come together and create a new entity. In an acquisition, one company buys another one and manages it consistent with the acquirer’s needs. An acquisition that involves integration has greater staffing implications than one that involves separation (Rizvi, 2008). A combining of companies is a major change. Mergers and acquisitions represent the end of the gamut of options companies have in combining with each other. It is the mergers and acquisitions that are the combinations that have the greatest implications for size of investment, control, integration requirements, pains of separation, and people management issues

Risk Arbitrage is essentially just arbitrage with some element of risk. Three main types of risk arbitrage are merger and acquisition arbitrage (also known as just merger arbitrage), liquidation arbitrage, and pairs trading. We will focus on merger arbitrage, as it pertains to this case study. Merger arbitrage is an investment strategy that chooses to capitalize upon arbitrage that presents when a merger or acquisition deal is announced. Essentially, an arbitrageur is seeking to profit from the movements of the acquirer’s and or target’s stock price from the merger. There are two main types of mergers, a cash merger and a stock merger, which

As with IPOs, there are strengths, and weaknesses associated with acquisitions. Obviously, those strengths and weaknesses must be evaluated thoroughly prior to making the decision to seek an acquisition. Opportunities, although mainly positive, are also essential considerations. The opportunities associated with acquisitions are readily apparent and correspond with the strengths of this option for expansion. Acquisitions provide important opportunities for increased shareholder value, brand recognition, and profitability, in addition to certain tax benefits.

In order to have a successful M&A many different steps are involved. Each step in the process is just as important as the next and cannot be over looked. Some of the broader area’s that require focus are; accounting, taxes, and legal. Within each of these categories are several sub categories that are important to focus on when attempting to complete a successful merger or acquisition. While every organization may have a different process for doing so, and place more importance on one than another would, all of the aspects listed are important. However, it is up to each individual organization to designate how important each one is.

A merger or acquisition is a combination of two companies where one corporation is completely absorbed by another corporation. The less essential company loses its identity and becomes part of the more imperative corporation, which retains its identity. A merger extinguishes the merged corporation, and the surviving corporation assumes all the rights, privileges, and liabilities of the merged corporation (Gomes, 2011). A merger is not the same as a consolidation, in which two corporations lose their separate identities and unite to form a completely new

In recent times, merger and acquisition are considered as one of the important steps for strategic growth. A company can plan to merge or acquire another company if it thinks it is a good investment, or they will earn a sound investment from it. The primary goal of any company entering into merger or acquisition is to boost the shareholder wealth. From a financial perspective, merger is carried due to diversification. It is the process of reducing the risks through investment decisions. For example, many a times, a company is highly at risk since it has done enormous investment in one industry then it can intend to buy a business in another industry (Sky Plc, 1990). This is termed as acquisition and can be beneficial for the host country.

The objective of this part is to analyze the reasons that can lead a firm to M&A operations. Neoclassical economists and strategy experts argue that it improves the competitive position of the firm by exploring the characteristics of the acquired business and its added value, while others are in favor of behavioral theories such as agency theories, hubris, and misvaluation. This part therefore presents the main motivations for merger transactions as well as the improvements that an M&A transaction provide.

Mergers and acquisitions have become an increasingly popular strategy for achieving corporate growth and diversification, with the M&A activity in the 1990's smashing all existing records, both in terms of the number of transactions and the size of the deals. The worldwide value of M&A increased from $462 billion in 1990 to over $3.5 trillion in 2000. Even though this unparalleled wave of M&A drop in the early 2000's as the global economy cooled off and slid into recession, the M&A volume worldwide remains at a much higher level than existed in

James Tobin theorized that firms would continue to invest as long as the values of their shares exceeded the replacement cost of their assets, therefore highlighting that the market value of a firm equals total asset replacement cost (Tobin 1958). Furthermore, market value of a firm to net replacement cost Is best expressed in relation to Tobin’s Q equation where if Q value is greater than 1, then a firm should consider expansion and growth as profit derived from net assets should exceed the total cost of assets because if Q is a measurement of performance then ‘takeover returns are larger if the target is performing poorly, and the bidder is performing well’ (Servaes 1991). Contrastingly, if the Q value was lower than 1 , the firm would be better off selling its assets as monetary value of the assets are more than the value of retaining them . According to neo-classical economic theory mergers occur from a result of profit maximizing behavior where rationally companies merge to gain a competitive advantage in the market place, recognized by the extent to which the company has acted out its ‘synergy’ basis which is the idea that by combining business strategies and activities, performance will increase and efficiency will lead to cost reduction due to the essential notion that a business will intend to merge with another

The research proposal which is going to be written will mainly revolve around the concept of mergers and acquisition in current situation. Research would mainly focus upon: How mergers and acquisitions take place? Why there is need to merge or acquire? What are the legal ways or step to do that? What parties are involved in mergers and acquisitions? What are the Factors to be considered before mergers and acquisition? In order to carry out whole research till the conclusion few models will be used such as business evaluation models which will comprise asset evaluation method, historical earning evaluation, future maintainable earnings evaluation, relative valuation and future discounted cash flows (DCF). The purpose of choosing the topic “mergers & acquisitions” is its significance in the industry of modern world now days. (Hansell, 2005)

Pitching an M&A deal to shareholders is much easier for companies than organic growth, which not only increase operating costs, but also requires more time and resources to result in profitability. 2007 was the record year for M&A deals with an estimate volume of $4.2 trillion until this record was beaten last year. 2015 became the biggest year on record for M&A with an estimated $5 trillion in deals, which is more than the GDP of Australia, Mexico and India combined. Major deals were struck across a wide range of industries, most notably in technology, telecommunications and healthcare. This report discusses what is driving this aggressive growth by companies through M&A, a highlight 2015’s biggest deal and predicts what M&A

65 years ago, in 1937, Toyota Motor Corporation was founded primarily as a subsidiary of Toyota Automatic Works, one of the largest manufacturers of weaving machines led by the "King of Inventors" Sakichi Toyoda.

Mergers and acquisition have a both positive and negative impacts on a firm 's financial performance or on its profitability. Firm may be in manufacturing sector or it may b service sector, but whenever the transaction of merger and acquisition takes place it effects the performance. In Africa Bank 's financial performance effects after the mergers takes place and the firm 's financial performance comprises or checked by Liquidity ratios, Performance ratios(ROA &ROE), and Investment valuation(EPS). The