This report is prepared to examine different offers proposed by the Alpha Plc to Delta Plc in acquisition of the target company. It is to analyze that which offer is most beneficial for acquiring company and vice versa and to recommend offers to be negotiated by each company. The report draws attention to the fact that each offer consist of different combination of offers including cash and stock. Each offer is valued to i?? 360,000,000 but with different cost of acquisition of Delta Plc which is calculated later in this report.
Calculations in this report to analyze offers includes Target shareholders’ gain – (the premium), Acquirer’s gain and The post-merger values of the combined companies. This report finds that stock offer which is discussed and calculated later in this report is most beneficial in respect of Alpha Plc while cash offer is most beneficial in respect of Delta Plc. It is recommended in this report that Alpha Plc should issue Delta Plc shareholders 0. 80 shares of Alpha Plc per share of Delta Plc stock and Delta Plc should negotiate to receive i?? 12. 00 per share for the shares of Delta Plc from Alpha Plc.
“Seasoned Advice from the Merger Arena,” published in 1985, right in the heat of the M&A land grab. The author is Sam Segnar, chairman and CEO of an energy company called InterNorth Inc. (that would later that decade morph into an outfit named Enron). He laid out a set of brilliant tactics, and the one he saved for last-“because I can’t overemphasize it”-is this: “Don’t Impose Your Standards to the Absolute. When you buy a company, you are buying a performance record. This is a company that made it the way they were structured and managed, not the way you are. You want to sustain the culture that has achieved that record.
Start imposing new people, new requirements, new values, and suddenly you don’t have what you thought you bought. ” (James Kristie, editor of Directors & Board) Now it has become the modern technique to expand industry by mergers and acquisitions rather than making huge investment which is quite a slower process of expansion. The Acquirer Company – Alpha Plc aim to acquire The Target Company – Delta Plc. The objective of this report is to analyze various offers (cash offer, stock offer and mixed offer) proposed by Alpha Plc to Delta Plc which are being negotiating between both companies.
Alpha Plc (Acquirer company) proposed three offers to Delta Plc (Target Company) which are discussed later in this report. Description of these offers and calculation and evaluation for each offer are followed by a comparison. At the end of this report, the most beneficial and cost efficient offer incase of Alpha Plc and Delta Plc is recommended. Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased.
“Economies of scale” is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase. (http://en. wikipedia. org/wiki/Economy_of_scale) Economies of scope are conceptually similar to economies of scale. Whereas ‘economies of scale’ for a firm primarily refers to reductions in average cost (cost per unit) associated with increasing the scale of production for a single product type, ‘economies of scope’ refers to lowering average cost for a firm in producing two or more products.
The term and concept development are due to Panzar and Willig (1977, 1981). Here, economies of scope make product diversification efficient if they are based on the common and recurrent use of proprietary know-how or on an indivisible physical asset. For example as the number of products promoted is increased, more people can be reached per dollar spent. (http://en. wikipedia. org/wiki/Economy_of_scope)Concept of Synergies (Can 2 + 2 = 5? ) Synergy is roughly defined as two or more things together being better or more effective than the sum of their parts.
As it’s used here, it means two or more companies merging such that the combined resources of the merged unit have more than the sum of the value they had individually. For example, suppose XYZ Engineering Company has very skilled sales and marketing people. Through their marketing abilities they have a number of contracts for sophisticated engineering projects. However, their engineering staff leaves something to be desired. The engineers are inexperienced and are not well equipped to handle the contracts that XYZ sales personnel are able to secure. (Gary L. Schine, 2009)”