Question 1:
In 2008 British Wallboard, the parent company of Stonewall has seen enough of the volatility in the Canadian construction materials market and sells the company to a competitor, US Corp. Its subsidiary, Canadian Wallboard, and Stonewall will merge into one organization. What are the benefits of the merger to British Wallboard? US Corp? Canadian Wallboard? Stonewall? (10 marks)
The benefits of the merger to British Wallboard:
Financial Benefits:
The benefit to British Wallboard of the sale and subsequent merger is not having losses from poor market conditions for Stonewall Industries.
British Wallboard may recognize some tax benefits from the sale of Stonewall Industries.
The benefits of the merger to US Corp:
Strategic Benefits:
US Corp will benefit from the merger strategically by leveraging current customers of Stonewall Industries.
As Canadian Wallboard is assumed to only operate in Canada similar to Stonewall Industries there is no benefit to opening in new markets internationally, or corporate venturing. Unless of course there is an international market – in which case having a larger presence in the Canadian market may make it more feasible to venture into the international markets.
Becoming a larger more efficient company with a strengthening competitive position opens up the opportunity for more mergers and acquisitions of competitors, suppliers and/or customers.
US Corp will benefit from operating synergies from combining the two companies. This could be realized by the costs saved due to economies of scale, the spreading of overhead, the increased specialization of labour and management, and the more efficient use of capital equipment.
Financial Benefits: The most obvious benefits is gained by economies of scale, reduced headcount, factories, and/or branches. There may be some tax advantages from the acquisition of