Case Study

Topics: Stock market, P/E ratio, Dot-com bubble Pages: 8 (2097 words) Published: February 26, 2013
A Merger can be defined as a Voluntary amalgamation of two firms on roughly equal terms into one new legal entity. Mergers are effected by exchange of the pre-merger stock (shares) for the stock of the new firm. Owners of each pre-merger firm continue as owners, and the resources of the merging entities are pooled for the benefit of the new entity. If the merged entities were competitors, the merger is called horizontal integration, if they were supplier or customer of one another, it is called vertical integration. There are many advantages that would arise from a merger between Flinder Valves and RSE International. FVC produces very technically complex products for the aerospace and defence industry which include many of the simple products produced by RSE. This would create a strategic benefit between the companies since their products are complements of each other. RSE has divisions that produce products for industries such as: aerospace propulsion and control systems, nautical navigation assemblies, and components for missile and fire-control systems. RSE could further develop these divisions with the addition FVC’s team of advanced engineers who have extensive experience in these areas. RSE can also benefit FVC’s strong management team who greatly valued technological advances through research and development. Both companies have fairly new manufacturing plants with state of the art machinery. Both companies have adequate access to railways for transportation of product, in addition FVC owned a fleetof trucks. Financially, both companies are experiencing recent rapid growth in share price due to strong performance despite the weak economic environment. Both companies are already tough competitors in the respective fields due to their unique characteristics and a merger would create great synergy between the two companies. Despite all the advantages there are a few disadvantages surrounding the merger. There seems to be a lack of clarity regarding the financial terms of the merger. The companies have failed to determine a cash or stock buyout and in what amount. There are also some inconsistencies between the stock since FVC is traded on the NASDAQ and RSE is traded on the American Stock Exchange. There is also the chance of possible antitrust action by the U.S. Department of Justice which has killed a merger deal for FVC in the past. Overall the merger seems very beneficial for both companies but FVC has been in several merger talks since the company became public.

* General advantages for a merger to both companies include; A primary advantage of the transaction is that a merger is legally simple and does not cost as much as other forms of acquisition. The reason is that the firms simply agree to combine their entire operations. Thus, for example, there is no need to transfer title to individual assets of the acquired firm to the acquiring firm. Besides that, merger also reduces the number of competition in the market and captures additional economic scales of the market. This will keep the company growth with the amalgamation of the competitive advantages of both firms. Merger also enables the company to restructuring and strengthening the organization as firms involved in the transaction share strategies to strengthen the organization, thus eliminate weaknesses in the firm. By the way, two heads are better than one. After the merger transaction took place, acquiring firm enables to make new investment with the surplus money available. Perhaps, the organization may invest in larger investment to yield more profit. The transaction also allows the acquiring firm to gain more market share, thus results better confidence from its current customers as the firm seems more reliable. This also results increase of new customers and also attracts other parties to have relationships with the organization in loads of kinds.

Bill Flinder needs to take in consideration that when Flinder...
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