Financing Alternative Benchmarking

Corporate mergers and acquisitions happen regularly on a daily basis, it is the reasoning behind the merger that changes. Many companies merge to expand their corporations or to help a firm from failing. Although there are mergers that are successful, mergers do not go without their downfalls. Mergers can consume an incredible amount of time and money, legal and tax complications, and a big change of mixing cultures of the two companies. For these reasons, Lester Electronics, Inc. (LEI) needs to ensure that the merger with Shang-wa will be in the best interest to their firm.

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In order to make this decision, LEI has decided to look at other companies to compare and contrast their decisions for merging, their success and the downsides. The companies LEI chose to research are XM-Sirius, AT&T, BellSouth, CNET, Beeyu Overseas, Ltd., BHP Billiton, and Schwarz Pharma Ag. By looking at these organizations, it will give LEI a better view of successful mergers and help them ensure that the merger was at the best interest of LEI.

BHP Billiton Synopsis: By reaching 55% ownership of the share register of WMC Resources Ltd, BHP Billiton now enters a compulsory acquisition stage which will see the end of WMC, a hugely successful company in Australian mining history. (Kerslake, T. 2005) BHP Billiton is the world’s largest resource development company. By reaching 55% ownership of the share register of WMC Resources Ltd, BHP Billiton now enters a compulsory acquisition stage which will see the end of WMC, a hugely successful company in Australian mining history. (Kerslake, T. 2005)

Rumors started about a takeover and soon WMC found itself attracting super-giant companies such as Anglo-American, BHP Billiton, and Rio Tinto. It was the giant BHP Billiton who was the company who won the offers of WMC. As a result of this takeover, BHP gains its first foothold into Uranium with 38% of the Worlds’ known resources in the one ore body. The sale of uranium, although a controversial issue, would appear to be a boom to the Australian economy as the nuclear energy market sells itself as an environmental alternative to the Greenhouse Gas problem. (Kerslake, T. 2005)

Schwarz Pharma Ag Synopsis: Schwars Pharma is a stock listed company with approximately 4,400 employees worldwide who develops novel medicines in the therapeutic areas of the central nervous system. In 2005 the Schwarz Pharma group achieved global sales of nearly 1 billion and has a strong international presence with subsidiaries in Europe, USA and Asia. The takeover was conducted by UCB, a leading global biopharmaceutical company dedicated to the research, development and commercialization of innovative pharmaceutical and biotechnology products in the fields of central nervous system disorders, allergy/respiratory diseases, immune and inflammatory disorders and oncology – UCB focuses on securing a leading position in severe disease categories. Employing over 8,300 people in over 40 countries, UCB achieved revenue of 2.3 billion euro in 2005. UCB is listed on the Euronext Brussels Exchange. Worldwide headquarters are located in Brussels, Belgium. (UCB, S.A., 2007)

After the success of the takeover, UCB announced it has received tenders of 87.62% of the outstanding share capital of Shwarz. Shareholders of Schwarz who had shares during the final acceptance period are expected to revive payment of 50 euro’s in cash and 0.8735 of new UCB shares in consideration to the shares they hold from Schwarz. The listing of these new UCB shares on Eurolist by Euronext Brussels is expected to occur on January 8, 2007. (UCB, S.A., 2007)

CNET Networks Synopsis: CNET Networks builds media experiences based on the items people love most. Currently holding brands such as CNET, GameSpot, BNET, and CHOW, delivers highly editorial programming that combines original, independent and user-generated content. CNET’s approach attracts people who thrive on being in the know, and who captivate others with their opinions and expertise. They attract customers in big numbers, currently over 140 million users a month.

With successful shares rising 9.23% to $9.35 following a report saying a consortium of investment funds has amassed a 21% stake in the media company and is seeking to oust the company’s directors and take over a majority of its board. (Denison, J. 2008) There is interest that The New York Times, an $8 billion fund founded by Barry Rosenstein, who sent a letter about its plan to the CNET board two weeks ago, which the company has yet to disclose. The Times reported that CNET rejected the proposal, contending that the consortium would effectively be taking over the company without paying a premium. (Denison, J. 2008)

CNET stock is currently neutral and losses are offset by gains. Many of the losses were on the positive side. These are not the statistics of a going “belly up” company but big changes are coming. More likely this is just an adjustment. Simply that CNET is receiving this much press is not encouraging. (Denison, J. 2008) Beeyu Overseas Ltd. Synopsis: Beeyu Overseas Ltd is a city-based tea manufacturer. Beeyu Company is set to become a large single-location tea manufacturer with the completion of its expansion program. It has also worked out an agreement with Tata Coffee Ltd to jointly set up an ambitious project. Beeyu has further sought to establish a presence in Sri Lanka. (Mandal and Dey, 2005) The company has an increasing volume of shares that are currently being traded in the Bombay Stock Exchange (BSE), but currently there are conflicting claims about a hostile interest in the stock.

The owner and founder, Mr. S.K. Khetan, with a high net worth individual and holds approximately three percent of Beeyu’s equity, is planning a voluntary open offer for an additional 33 percent. The move to acquire the additional stake, if successful, will bring him on par with Mr B.P. Singh, Chairman of the company, who personally holds approximately 34 percent shares in the company. Mr. Khetan has claimed that he has secured commitments from a few other large investors who together hold another 15 percent of Beeyu’s equity. The latter, he said, have agreed to support the move. In case he can rustle up their support, the group will be able to control 51 percent of the outstanding shares. (Mandal and Dey, 2005)

XM/Sirius Synopsis: Two radio companies have decided to announce their merger, XM Satellite Radio and Sirius Satellite Radio. The planned merger is estimated at $13 million to launch. Shareholders greeted the merger with the expectations of lower costs and future roads to profitability. XM Chairman Gary Parson and XM Chief Executive Hugh Panero released the following statement, “will be better positioned to compete effectively with the continually expanding array of entertainment alternatives.” (Kharif, 1) Several analysts believe that the planned expectations are premature.

The merger was established with the focus to gain regulatory approval and woo customers. Both Sirius and XM may not reach their subscribing goal of 2007. “Researchers at IDC had expected the satellite radio companies to reach a combined 22 million subscribers by the end of 2007, but XM and Sirius may now miss that target, “given the uncertainty around the merger and availability of service on ongoing basis.” (Kharif, 2) This merger is certainly is threatening the income statement for both companies. In an effort to maintain low fee for subscriptions, expenses will be trimmed by reducing unnecessary programming.

Automakers that have begun to install satellite radios in new cars are hesitant to continue this installation because of the merger. Understandably, automakers do not wish to continue the installation of these radios until it has been made certain that this merger will not fall apart. Both XM and Sirius will encounter consumer and subscriber slowdown. XM and Sirius are focused on the long-run picture and how they can work together to bring the most successful satellite radio. “If both companies are focusing on making the merger happen, it’s likely to take attention away from subscriber acquisition.” (Kharif, 3)