Case 70
Computer Concepts/CompuTech
Merger Analysis
QUESTIONS
Question 1 Several factors have been proposed as providing a rationale for mergers. Among the more prominent ones are (1) tax considerations, (2) diversification, (3) control, (4) purchase of assets below replacement cost, and (5) synergy. From the standpoint of society, which of these reasons are justifiable? Which are not? Why is such a question relevant to a company like CompuTech, which is considering a specific acquisition? Explain your answers.
Answer: Synergy is by far the most socially justifiable reason for mergers. Synergy occurs when the value of the combined enterprise exceeds the sum of the values of the pre-merger firms. (If synergy exists, the whole is
…show more content…
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.
Sometimes a firm will be touted as a possible acquisition candidate because the replacement value of its assets is considerably higher than the firm's market value. For example, in the early 1980s, oil companies could acquire reserves more cheaply by buying out other oil companies than by exploratory drilling. However, the value of an asset stems from its expected cash flow, not from its cost. Thus, paying $1 million for a slide rule plant which would cost $2 million to build from scratch is not much of a deal if no one uses slide rules.
In recent
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:
Omnicare, Inc., (NYSE: OCR) and CVS Health Corporation (NYSE: CVS), are two competitive firms in different industries. A press release announces that “CVS Health and Omnicare sign a definitive agreement for CVS Health to acquire Omnicare” ("CVS Health and Omnicare Sign a Definitive Agreement for CVS Health to Acquire Omnicare," 2015). The purpose of this paper is to discuss the merger of CVS and Omnicare. First, the paper describes the principal firms in the merger and the industry in which each operates. Secondly, the paper discusses the incentives to consolidate from the viewpoints of each firm. Thirdly, the writer explains the competitive environment in the industry and how it benefits the firms and society.
The merger I choose to research was the acquisition of Pixar by Disney. The merger between Disney and Pixar was a very successful one. They worked together in the past and their contract was running out after the release of Cars. This was the perfect opportunity and sensible move for these two companies to merge. The merger would allow the companies to work together conveniently. This merger was very
Merging with another organization has downfalls of destroying wealth from the merger. Considering the buying price is important when merging, spending too much on the merger will impound the value after the merger. Some mergers do not create wealth so capital is lost through the merger. There is no guarantee of financial gain and every formula considered with focus, just as with an acquisition. The final decision dictated by the variables. One company merging with another company takes the debt and losses of those companies in the new formed company.
In this chapter, we first provide coverage of expansion through corporate takeovers and an overview of the consolidation process. Then we present the acquisition method of accounting for business combinations followed by limited coverage of the purchase method and pooling of interests provided in a separate sections.
The grounds for any merger depend on the competitive nature of both firms. If one firm is highly competitive and tries to
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.
A merger is a partial or total combination of two separate business firms and forming of a new one. There are predominantly two kinds of mergers: partial and complete. Partial merger usually involves the combination of joint ventures and inter-corporate stock purchases. Complete mergers are results in blending of identities and the creation of a single succeeding firm. (Hicks, 2012, p 491). Mergers in the healthcare sector, particularly horizontal hospital mergers wherein two or more hospitals merge into a single corporation, are increasing both in frequency and importance. (Gaughan, 2002). This paper is an attempt to study the impact of the merger of two competing healthcare organization and will also attempt to propose appropriate
When companies combine/merge the whole objective is to gain new opportunities, gain market share, grow the business, to become more innovative and to improve product offerings, utilizing/sharing the existing resources and data. From the case
However, there has been present a considerable cyclicality in the Chemical Industrial Products manufacturing industry due to which the M&A deals have been a common tool of survival for the competitors as well as for the big players to capture the integrated products markets and create value across the value chain. Therefore, Blackstone has been valuing a backward integration as a due.
The most current issue that is causing a high amount of resistance is the supplies and equipment battles. The facilities all have quality products to offer, and each contains their perks, but as costly as it is even to follow through with a large merger is does come with a cost. So, therefore, when cost is involved then the bottom line is who is more cost-effective.
- Sales increase: a) cross-promotions of each company’s brand and utilization of each company’s channels, and b) cooperation in international businesses.
One major objective of mergers is to be able to reduce or fully eliminate the weaknesses that may exit in
Mergers should exhibit the following five characteristics in order to be considered potentially viable candidates for a successful merger: