1. Merger or amalgamation
Merger is defined as a combination where two or more than two companies compine in to one company .In this process one company survives and other lose their corporate existence .The survivor acquires assets as well as liabilities of the merged company or companies.Amaigamation is synonym of merger. A merger or amalgamation should be consederd only after careful examination of the merits and demerits, and ensuring overall positive value addition.The first stage of any merger or amalgamation must be a through rewiew by each organisation of the other,which is commonly know as due deligence process.
Steps to successful merger
Merger need careful planning to achive financial goals, reduse problems and for profit-making.
Drop in productivity is expected to be round 50% as people from different workplaces have differences of opnion.Even a successful merger can take three months to three years for the completion of recovery process in an organisation.
For employees,possibility of changes and uncertainity at workplace can create and stress.This affect judgement, perception, and inter personal relationship.
Often redused communication and increased centerlisation as part of restructuring in companies create space for rumours and insecuity in employees .During these times,employee do not have much access to senior level managers .Active intervention is necessary to maintain ing and the level of productivity and to assure employees.
Some suggestion for a smoother restructuring and transition are : *
Circulate a consistant message in the combining entities from top down. *
consistant accountability and compensation through out the company for similar position. *
Findout new ways of structuring the company to bridge coprate culture difference. *
Establish gaugeable objectives,especialy in areas, which will be working togather for a common goal. *
Rewamp the compensation plan to recognise the additional work required by transtion. *
Plan different ways for people to get to know each other. 2.Approaches for selection criteria
The basic purpose of valuation of target companies is locate possibilities of takeover. Valuation serves the purpose of identification of target companies for takeover as well as serves the basic purpose of fixing exchange ratio in case the target company is finally selected for acquisition. Some financial experts suggest criteria bsed on two approaches.one is pressent value analysis and other one capital asset pricing.
Present value analysis
The present value analysis is mostly similar to valuation on the basis of steady state earing and divident for listed companies.the earing or the target firm are projected and discounted at the aquire’s cost of capital to obtain a teoretical market price of the shares of target company.this is then compared with the actual market price to determine the net present value of invesment in the terget company. Example for how to calculate theoretical price.
i=k=Acquirer company’s cost of capital 10%
d0=p0=target company’s pay out rasio rupees 1 per share.
Target company’s market price per share rupees 50
Target company’s merger @ 100% basis
g=target company’s earning and divident expected to grow at 8%p.a using above data and the formula for the constant annual growth rate of divident d0(1+g) asdiscussed earlier in divid (1_g)
ent approaches target company’s teoretical price is as under:
(k_g) .10_.08 .02
The therotical price exceeds the market price 54_50+ 4 here,NPVis per share . the result requires reconcideration. This approaches does not consider the risk posture of acqustion .i e.,the portfolio effect . the capital assets pricing model consider this aspects as...
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