Theories Of Synergy Theory

The share price of $270,000 was significantly higher because the “fair value” as perceived by the dissenters, which accounted for the chance of an IPO. Taking into account the recently traded Kohler Co. share prices, the book value of a share, and the possibility of an IPO greatly inflated what the perceived value of each share should be. While Kohler believed their voting control and ownership structure would remain the same, the shareholders believed otherwise. Because shareholders assumed Kohler would go public, they argued for a higher valuation so as to receive the highest price, and thus profit, in the buyout.  So based on the highest MVE, we picked Masco as the comparable firm of choice. Using Masco’s MVE, $9838.8, and LTM EBIAT, $437.3, we solved for Masco’s P/E ratio, which was equal to 22.5. By multiplying the P/E ratio by Kohler’s LTM EBIAT (22.5 * $93.76), we projected a market value of $2,109,610,000.  To solve for estimated share price, we divided the projected market value by 7,587.89, the number of shares outstanding to obtain an estimated share price of $278,023.47. This estimate is near the $270,000 per share offer price.

According to the researchers the increased value results from an opportunity to utilize a specialized resources which arises solely as a result of the merger (Jensens & Ruback, 1983; Bradle, Desai and Kim , 1983). For creating operational and financial synergies managers believe that two enterprises will be worth more if merged than if operates as two separate entities. Thus, the two companies, A and B:

Our reconciliation for this undervaluation is that the market is already pricing in a takeover. Some evidence of this can be demonstrated by the 1.0 beta of paramount. If we look at the 1992 Q1 to August 30 1993 returns of S&P500 and PCI, PCI is +30.6% and S&P500 is +14.6%, which implies an approximate

(a) In a merger agreement, the assets and liabilities of the firm which is being acquired end up being absorbed by the buyers firm. A merger could be the most effective and efficient way to enter a new market without the need of creating

Mergers and acquisitions have become a growing trend for companies to inorganically grow a business within its particular industry. There are many goals that companies may be looking to achieve by doing this, but the main reason is to guarantee long-term and profitable growth for their business. Companies have to keep up with a rapidly increasing global market and increased competition. With the struggle for competitive advantage becoming stronger and stronger, it is almost essential to achieve these mergers. Through research I will attempt to dissect the best practices for achieving merger success.

In addition, like any other merger between two firms, companies benefit from significant cost synergy during the implementation of an acquisition and/or merger with other company. For example, when two companies combine their strengths to complement each other, they restructure their operations and as a result several offices and sites are closed down which leads to the laying off of employees, consolidating services and software applications. All these changes, result in synergy savings for the new company.

Merger motives that are questionable on economic grounds are diversification, purchase of assets below replacement cost, and control. Managers often state that diversification helps to stabilize a firm's earnings and reduces total risk, hence benefits shareholders. Stabilization of earnings is certainly beneficial to a firm's employees, suppliers, customers, and managers. However, if a stock investor is concerned about earnings variability, he or she can diversify more easily than the firm can. Why should Firm A and Firm B merge to stabilize earnings when stockholders can merely purchase both stocks and accomplish the same thing? Further, we know that well-diversified shareholders are more concerned with a stock's market risk than with its total risk, and higher earnings instability does not necessarily translate into higher market risk.

Theoretically it is assumed that mergers improve the performance of the acquiring firm due to

The goals of mergers range from reducing the number of competitors, to access of new products (Belcourt et al., p 330). Statistics show that 80% of new product developments fail (Howells, 2011), partly due to challenges and conflicts with human resources functions. Mergers and acquisitions are the fastest way to enter new markets. “It is estimated that 1/3 of all mergers fail due to faulty integration of diverse operations and cultures,” (Chhinzer, 2013). Therefore, the success of a merger or acquisition lies in the ability to guide, motivate, retain, and effectively use

Haspeslagh and Jemison (1987), argue that what determines the success of a acquisition is not the actual purchase itself, but the development of the acquisition strategy the supports. Unfortunately, many executives face the acquisitions as an end, not a means to achieve that end. According to this author, the acquisition is only one strategy business growth. There are others as internal growth, joint venture, partnership, franchise and strategic alliance. All should be evaluated by the company before implementing a business development strategy. A proper analysis of the acquisition goes beyond the study's own candidate company. It must include a contribution from the analysis of potential acquisition for the strategic development, as well as

Synergy are extra benefits connected with economies of scale after mergers or acquisitions. It’s seen as the formation of a whole which is usually more than the sum of its individual portions. Through combination of General Mills and Pillsbury, the company gains market power since it gets sufficient power to increase its profits though price leadership, competitive advantage, monopolistic or oligopolistic. The management motive of acquiring Pillsbury was to increase value to the General Mills shareholders through creating opportunities to increase on revenues and earnings by market expansion, product differentiation and invention and efficiency achievements resultant from the merger would be extra stable.

Mergers and acquisition plays an important role in survival/vitalization of a corporation in today’s market. It continues to be a breakthrough strategy for improving innovation of a company’s product or services, market share, share price etc.

According to experts, IT is labeled as the “root cause” for many merger failures due to lack of integration, failure of due diligence and the inability to facilitate synergies (“IT M&A”, n.d.). With eighty

136). The test evaluates whether the unit benefits by being independently owned or owned through partnerships, part of an alliance, or long-term contracts. A horizontal acquisition creates value through the synergy gained, which exists when the value of the newly-combined firms exceed the sum of the values of the two merged firms if they remained separately owned (Capron, 1999, p. 988).

The nature of change being witnessed in the contemporary business environment has made mergers and acquisitions a common feature. In the context of mergers, some two or more companies engage in negotiations and start to operate as a single entity. On the other hand, in acquisitions, one large firm acquires a smaller company. While on paper, these two components, both mergers, and acquisitions, may appear straightforward; the gist of the issue is that there is significant complexity associated with both measures.