...CHAPTER 29 Mergers and Acquisitions Multiple Choice Questions: I. DEFINITIONS MERGER a 1. The complete absorption of one company by another, wherein the acquiring firm retains its identity and the acquired firm ceases to exist as a separate entity, is called a: a. merger. b. consolidation. c. tender offer. d. spinoff. e. divestiture. Difficulty level: Easy CONSOLIDATION b 2. A merger in which an entirely new firm is created and both the acquired and acquiring firms cease to exist is called a: a. divestiture. b. consolidation. c. tender offer. d. spinoff. e. conglomeration. Difficulty level: Easy TENDER OFFER c 3. A public offer by one firm to directly buy the shares of another firm is called a: a. merger. b. consolidation. c. tender offer. d. spinoff. e. divestiture. Difficulty level: Easy HORIZONTAL ACQUISITION d 4. The acquisition of a firm in the same industry as the bidder is called a _____ acquisition. a. conglomerate b. forward c. backward d. horizontal e. vertical Difficulty level: Easy 29-1 VERTICAL ACQUISITION e 5. The acquisition of a firm involved with a different production process stage than the bidder is called a _____ acquisition. a. conglomerate b. forward c. backward d. horizontal e. vertical Difficulty level: Easy CONGLOMERATE ACQUISITION a 6. The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition. a. conglomerate b. forward c. backward d. horizontal e. vertical Difficulty level: Easy PROXY CONTEST...
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...Valuation Related to Mergers and Acquisitions The methods of valuation related to mergers and acquisitions can be broadly categorized into three types, namely market based method, income based method, as well as asset based method. All these methods carry a significant degree of importance in the context of mergers and acquisitions. There are numerous elements, which ascertain whether a particular firm should be acquired or not. The financial steadiness of the firm, which is to be taken over is quite important to find out. In addition, the financial track record over the last few years and trends demonstrated in the macroeconomic ratio and indices require to be analyzed. Among the methods of valuation related to mergers and acquisitions, the market based method might be regarded as more appropriate, nevertheless, all the valuation methods are crucial, taking into account the condition that is prevalent at the time when a merger or acquisition is going to take place. Methods of Valuation Related to Mergers and Acquisitions The methods of valuation associated with mergers and acquisitions can be broadly classified into the following types: 1) Market Based Method In valuation of mergers and acquisitions with the help of market based method, the different attributes of the firm which is going to be acquired are compared with the similar types of attributes of other firms in the market. These firms (not the firm in question) normally have a market value that has been set up earlier...
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...International ISSN: 2278-6236 Journal of Advanced Research in Management and Social Sciences Impact Factor: 4.400 MERGERS A N D ACQUISITIONS IN THE INDIAN BANKING SECTOR: A STUDY OF SELECTED BANKS Komal Gupta* Abstract: In the present era of global economy, Mergers most widely used business strategy restructuring greater market economies share, long term of corporate profitability, entering of scale etc. The present paper evaluates on the financial is conducted performance and Acquisitions have become the and strengthening new markets, capitalising the effects of merger and acquisitions to analyse the effectiveness on the banks. Two cases of merger and acquisitions of mergers and acquisitions have been taken randomly the study, first the merger of ICICI bank and The Bank of Rajasthan, Bank of Punjab. The results of the study indicate positive and acquisitions on the financial as sample for and second the merger of HDFC bank and Centurion of mergers on of the selected banks in India. Pre and post merger comparison on selected variables impact to achieve performance that there is a of the selected banks. Key Words: Mergers and acquisition, Banking, Financial Performance, Financial Ratios, Synergy. *Assistant Professor, Maharaja Agrasen College, Delhi University Vol. 4 | No. 3 | March 2015 www.garph.co...
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...Structure is that the company should be able to manage the company with growth by using a combination of debt and equity for maintaining its financial status for survival. Debt is bond issues that are long-term notes payable, equity is common or preferred stock or retained earnings. Capital Structure is also known as debt-to-ratio equity ratio which will give a view of the company in terms or risk. Equity capital is moneys that are given and owned by shareholders. There are two types of equity capital: 1. Contributed Capital in which money invested is in exchange for company stock. 2. Retained earnings are the profits from past years that have been collected and used to strengthen the budget or fund growth of the company by acquisition or expansion. Equity capital is often viewed as an expensive type of capital which can be used by the company due to the cost, which in turn requires that the company must attract more investment. Debt capital is the money that is borrowed and is put to work by the company. Long-term debt is most often...
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...Tucker, Jun Zheng Flinders Valves and Controls Inc: Potential Merger and Acquisition with RSE International Corporation Executive Summary We are presented with the opportunity to evaluate two enterprises, which are in discussion over a possible acquisition. Flinders Valves and Controls Inc. (FVC) achieved a reputation for engineering excellence from its capability in providing specific applications for the defense and aerospace industries. Because of its reputation and excellence, FVC out-grew its small company, organized in 1980, and in 1996 it went public before a failed merger with Auden Company (which held 20% of FVC Common stock), due to a possible antitrust action. Since then, no other firms have been able to work out an agreement for a merger with FVC. However, RSE International Corporation (RSE), a public Russell 1000 company, had recognized FVC’s disclosure of a U.S. government contract and felt for an opportunity to focus on diversification through an aggressive growth-by-acquisition program. With both firms having growing concerns about the current state of the economy as they move closer to the opportunity of striking a deal that can be both profitable and affordable for both sides, possible negotiations were within reach. With this opportunity in focus, we analyze the value of the two firms and discuss three concerns; the effects of a merger, what opening offer RSE should make for the acquisition of FVC, and how RSE can raise the capital for such an offer. ...
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...CHAPTER 21 MERGERS AND ACQUISITIONS (Difficulty: E = Easy, M = Medium, and T = Tough) Multiple Choice: Conceptual Easy: Merger tactics Answer: e Diff: E [i]. Firms use defensive tactics to fight off undesired mergers. These tactics include a. Raising antitrust issues. b. Taking poison pills. c. Getting a white knight to bid for the firm. d. Repurchasing their own stock. e. All of the statements above are correct. Mergers Answer: d Diff: E [ii]. Which of the following are given as reasons for the high level of merger activity in the U.S.? a. Synergistic benefits arising from mergers. b. Reduction in competition resulting from mergers. c. Attempts to stabilize earnings by diversifying. d. Statements a and c are correct. e. All of the statements above are correct. Mergers Answer: b Diff: E N [iii]. Which of the following statements concerning mergers is most correct? a. A conglomerate merger is a merger of firms in the same general industry, but for which no customer or supplier relationship exists. b. A horizontal merger is a combination of two firms that produce the same type of good or service. c. A congeneric merger is a merger of companies in totally different industries. d. Statements a and c are correct. e. None of the statements above is correct. Merger analysis Answer: d Diff: E N [iv]. Which of the following statements concerning...
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...Available online at http://www.akpinsight.webs.com Merger and Acquisitions (M&As) in the Indian Banking Sector in Post Liberalization Regime Dept. of Commerce, AMU, Aligarh India Azeem Ahmad Khan ABSTRACT The purpose of this paper is to explore various motivations of Merger and Acquisitions in the Indian banking sector. This includes the various aspects of banking Industry’s Merger and Acquisitions. It also compares pre and post merger financial performance of merged banks with the help of financial parameters like Gross-Profit Margin, Net- Profit Margin, Operating Profit Margin, Return on Capital Employed (ROCE), Return on Equity (ROE) and Debt-Equity Ratio. Through literature review it comes to know that most of the work done high lightened the impact of Merger and Acquisitions on different aspects of the companies. The data of Merger and Acquisitions since economic liberalization are collected for a set of various financial parameters. This study also examines the changes occurring in the acquiring firms on the basis of financial ground and also the overall impact of Merger and acquisitions (M&As) on acquiring banks. The Researcher used independent t-test for testing the statistical significance and this test is applied not only for the ratio analysis but also to test the effect of Merger and Acquisitions on the performance of banks. This performance is being tested on the basis of two grounds i.e. Pre merger and Post merger. The result of the study indicates that the banks...
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...generally defined as how a company finances its assets. It is measured as a percentage of debt and equity (common and preferred stock). Potential investors tend to look positively on a company that has more equity and less debt. The best capital structure approach for CBI to take is to implement the 50% Preferred and 50% Common Stock scenario. This alternative provides the best overall way to improve CBI's financial position with strong capital structure while maximizing shareholder return. A1a. A review of Canadian Bikes data over five years indicates consistently increased earnings before interest and taxes (EBIT), increased net profit, and increased shareholder returns (EPS). Offering the 50% preferred and 50% common stock results in the highest EPS for years one, two, and five and equal to the next alternative (20% with 9%bond) in years three and four. Net income is higher despite increased income taxes for all five years as is the EBIT. Because this option offers 50% preferred stock at 5%, $50 par, the total income available for Common stock and common stock shares outstanding is less than the other options....
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...of factors need to be considered before making this decision, such as, qualified labor force and cost of labor, tax incentives, transportation cost new facility cost and acceptance of the community. However, a new option became available after Canadian Bikes, Inc. heard about Competition Bikes, Inc. desire to move into the Canadian market. Canadian Bikes, Inc. proposed a number of options to Competition Bikes, Inc. · merger with Canadian Bikes, Inc.; · acquisition with Canadian Bikes, Inc. for $1.485/share; · Licensing of the Titanium technology for $200/unit. Based on this proposal the merger or acquisition of Canadian Bikes, Inc. required a detailed review and recommendation of the options provided. Capital Structure Options “The two principal sources of finance for a company are equity and debt. What should be the proportion of equity and debt in the capital structure of the firm?” (ManageMentor, 2003). A number of various theories may be utilized to make a determination. These theories are known as the net income theory (NI), the net...
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...Approach…………………………………………………………………………………………………..5 3.2. Accounting For Business Combination Calculate………………………….………6-7 3. CHAPTER 2 --- What is the Business Merger and Acquisition ---……………………………8 3.1. Types of Merger………………………………………………………………………………………..9 3.2. Purpose of Merger and Acquisition……………………………………………………..9-10 3.3. The Process of Merger and Acquisition with Reference to an Organization…………………………………….………………………………………………………………...10 3.4. Stage of Integration……………………………………...………..…..11-12-13 4. CHAPTER 3 --- What is the Business Consolidation…….…..…………………………………..14 4.1. Significance of Consolidation……….…………………...…………………………………….14 4.2. Function of Consolidation…………….………………………………………………………….14 4.3. Effects of Consolidation…….…………………………………………………………………….15 5. CHAPTER 4 --- What is the Business Goodwill…………………….……………………………….15 5.1. What Creates Business Goodwill……………………………….……………………….……15 5.2. Types of Business Goodwill……………………………………………….……………….……16 5.3. Accounting View of Business Goodwill…………………………………………….….….16 5.4. Economic View of Business Goodwill……………………………………………….….….16 5.5. How Business Goodwill is Determined…………………..……………………….….17-18 5.6. How Do You Calculate Goodwill in Accounting?............................18-19-20 6. CHAPTER 5--- Fair Value/Cost and Equity Method………………………………………20-21-22 6.1. Accounting Procuders Under the Fair Value/Cost and Equity Method…..22-23 6. CONCLUSIONS……………………………….………………………………………………………….….…24 7. REFERENCES……………………………………………………………………………………………...
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...B1. Historical Analysis Historical analysis of Custom Snowboards financial statements shows the company’s net sales from 2012 to 2014. Net Sales In 2012 custom snowboards net sales were $6,874,700, net sales and continued to increase by .2% in 2013. Sales continued to increase throughout 2014, with net sales of $6,955,200 an overall increase of 1.2% from 2012 two 2014. Current Ratio Custom Snowboards profitability was at its highest in 2013 when the company’s Current Ratio was 7.06 in 2013 which would suggest that Custom Snowboards ability to pay its debts and or liabilities was very strong, while still maintaining the normal day to day business operations. In 2014 Custom Snowboards current ratio fell by .5 to 6.56 however, the company was again able to maintain its daily operations and pay its short-term debts. A current ratio of 4.20 could also be considered “too” high when compared to when it’s competitor Winter Sports because it could be an indication that Custom Snowboards should be investing the excess “cash” or not taking enough risks and investing money back into the company for continued growth and should be making a profit from those extra funds. Net Earnings Custom Snowboards financial statements also reveal a significant decrease in the company’s net earnings from 2012 to 2014. Custom Snowboards net earnings decreased tremendously in 2014 from 2012 by $85,275 or 47.7%. Custom snowboards operating expenses increased overall from 2012 two 2014 x 8.2% or...
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...A1. Competition Bikes is considering expansion into Canada. Before this consideration can be made it is essential to review the capital structure and ensure operations maybe fully funded. Based on past financial standing Competition Bikes has long term debt that may cause concern. Below is a Chart displaying potential earning per common stack share based on Earnings before interest and tax figures from the Canadian Budgeted earnings for Year 9-13. Looking here you can see the optimal Capital Structure for the moderate Canadian budgeted earnings. The goal is to determine which source of alternative for capital sources will fit Competition Bikes Best. Earnings per common stock share refers to the profitability of a company by placing a value on their stock (Investopedia 2013). When reviewing the information above it is recommended that Competition Bikes Inc. issues a 50% preferred stock with a 5% dividend interest and $50 par and a 50% Common stock | 12% Bond | 50% Preferred (5%,$50par) and 50% Common Stock | 20% 12% Bonds and Common Stock | 40% 12% Bonds and Common Stocks | 60% 12% Bonds and Common Stock | | Earnings Per Common Stock Share | 0.002 | 0.027 | 0.0027 | 0.023 | 0.017 | Year 9 | | 0.009 | 0.032 | 0.032 | 0.028 | 0.023 | Year 10 | . | 0.019 | 0.039 | 0.038 | 0.035 | 0.031 | Year 11 | | 0.031 | 0.048 | 0.046 | 0.043 | 0.04 | year 12 | | 0.042 | 0.057 | 0.054 | 0.052 | 0.049 | Year 13 | | 0.103 | 0.203 | 0.1727 | 0.181 | 0.16 | | This options...
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...EFFECT OF MERGER ACQUISITION ON FIRM’S PERFORMANCE BY AYODELE EYITOPE A. DARAMOLA OPEMIPO O. FALUSI OLANIYI JANUARY 2001 ABSTRACT The world is changing. Economy being a Dynamic phenomenon is changing it. Gone are the days when the Nigerian economy is described as underdeveloped. We are not saying that our economy ranks in pari-passu with that of Western Europe. However, we are so far away from where we started as a nation. Hence the Nigerian economy have being attaining a measure of relative sophistication over the years. This is evident in the recent development in the Nigerian financial system. The hitherto esteemed financial practices which are assumed to be the exclusive practices of developed Western Eutopean economies continue to assure prominence in Nigeria. Nay, in all the developing countries. These financial practices manifest themselves in the area of corporate finance. Such practices among others are leasing, loan – sydication and merger – acquisition which is the focus of this study. Merger – acquisition has been defined in many ways ostensibly to bring to light its legal and literal meaning. It will suffice however, to define merger acquisition as a combination of two or more existing companies. Such combination of companies take different forms. Various reasons and theories have been advanced to be the moving focus behind merger execution. The main focus of...
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...Excellence in Financial Management Course 7: Mergers & Acquisitions (Part 2) Prepared by: Matt H. Evans, CPA, CMA, CFM Part 2 of this course continues with an overview of the merger and acquisition process, including the valuation process, post merger integration and anti-takeover defenses. The purpose of this course is to give the user a solid understanding of how mergers and acquisitions work. This course deals with advanced concepts in valuation. Therefore, the user should have an understanding of cost of capital, forecasting, and value based management before taking this course. This course is recommended for 2 hours of Continuing Professional Education. In order to receive credit, you will need to pass a multiple choice exam which is administered over the internet at www.exinfm.com/training Published June 2000 Chapter 4 Valuation Concepts & Standards As indicated in Part 1 of this Short Course, a major challenge within the merger and acquisition process is due diligence. One of the more critical elements within due diligence is valuation of the Target Company. We need to assign a value or more specifically a range of values to the Target Company so that we can guide the merger and acquisition process. We need answers to several questions: How much should we pay for the target company, how much is the target worth, how does this compare to the current market value of the target company, etc.? It should be noted that...
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...Bikes products is also known in Canada with Canadian customer orders comprising about 10% of the company output. Because of this success, Competition Bikes is exploring the possibility of an expansion into Toronto, Canada. Capital Structure Examining which capital acquisition methods will maximize shareholder return is an important step in exploring the possibility of expansion. Earnings before interest and tax were examined for each year using the approaches below. The total needs are expected to be $600,000. Earnings per Common Stock Share 12% Bonds 50% Preferred (5%, $50 par) and 50% Common Stock 20% 12% Bonds and Common Stock 40% 12% Bonds and Common Stock 60% 12% Bonds and Common Stock Year 9 0.002 0.027 0.027 0.023 0.017 Year 10 0.009 0.032 0.032 0.028 0.023 Year 11 0.019 0.039 0.038 0.035 0.031 Year 12 0.031 0.048 0.046 0.043 0.04 Year 13 0.042 0.057 0.054 0.052 0.049 0.103 0.203 0.197 0.181 0.16 Obtaining the funds by issuing common stock for 50% and preferred stock for 50% is the most lucrative and is the best option for Competition Bikes. There is no interest on bonds, because they aren’t being used. Net income is higher than the other methods. Preferred stockholders will find this investment attractive and will invest knowing that they will be paid before the common stockholders so there is less risk to them. Earnings per common stock share is higher with this approach...
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