The Financial Position
The main caught, we can face in such as invasion is the computation of the intrinsic charge for the visitors. The intrinsic amount would be calculated after considering the whole corporate construct of the organization (Dann, L.Y. and H. DeAngelo, 1983).
History and study show that our troupe and our competitor will earn a substantial amount of promote, in acquisition. We have analyzed that the stance of fusion will spread several fiscal indicators towards the prosperity, which predominantly Return on Assets (ROA) and Return of Equity (ROE). We have to take this impel because the present tribute crunch had cruelly affected us as far as the economic pose is upset.
Rationale behind the Takeover: Due to the brutality of the current economic downturn, almost every organization is on the verge of the bankruptcy. Hundreds of thousands of businesses all over the world has shuttered down due to shortage of liquidity and failure in comply from the financial obligations. Trench Coat Plc has a capital of $500 million, while the capital of Sweat Shop Plc is half than that of Trench Coat, manifesting a figure of $250 million. If we consider the current economic crisis as the main cause of the downturn, then we can assume that the company who has low statutory reserves and liquidity will face discretion in their long run. The core rationale behind this takeover is almost the same as Sweat Shop Plc was facing a tough time and are near towards default. Comparatively Trench Coat is a big company has a huge capital of around $500 million and the action of merger will bring positive news for them.
Success or Failure of Corporate Mergers: Merging two behemoths with varying cultures, cross-competing business sales forces, and confused customers will result in distractions and loss of customer relationships. HP/Compaq competitors (Dell, Sun, IBM) are licking their chops at the mess the merger creates - and at the opportunity to steal away customers. Usually companies merge with those companies who are their major competitors to keep an edge over them plausibly.
We have analyzed from the study that the perception of the directors of both the companies is contradictory, as the directors of Trench Coat Plc thought that the merger will give extensive benefits to the company. On the contrary, Sweat Shop Plc. Directors were not in the same thoughts because in front of them the merger will not work substantially in their long run. Personally, I think that that this merger will certainly add economic benefits for the organization because the action can increase the overall capital of Trench Coat Plc to $850 million from $500 million. With regards to that the company’s overall assets and equity will also increase from the merger. Some larger companies cannot respond as quickly to market changes due to their size and the challenge coordinating new directions to employees. With the increment in the financial position of the company, one thing which will also increase with the increment of the equity of the organization is their workforce. Obviously the cultural stances of the employees of both these organizations are different from each other because of the environment they got in an individual company.
The Problems in the Valuation Process: The company will envisage a number of problems during their valuation process. Effective dividend and capital structure policy is quite important for every organization. Capital structure includes the cost of capital calculation and dividend yield. Capital structure also includes the computation of cost of equity, debt and preferred stock holding which are quite essential to gauge the overall financial health of the company. It is just because of the unavailability of the data. Net realizable Value or Net Asset Value (NAV) has also changed dramatically because the entire capital structure of the organization has been affected. Like the capital has increased from $500 million to $850 million and the workforce have also increased substantially. It is an obvious fact that, the corporate mergers are not always worthwhile as sometimes it may create problems for the organization. We will discuss the same in the next section.
Risk for Trench Coat Plc: The association of risk is always dangerous in any thing. The amount of debt and other financial obligations of Sweat Coat Plc can be a vulnerable element for the organization as a whole. Study reveals that sometimes heavy amount of debts will create a number of problems for that organization, who want to acquire a company. Another challenge with merging is the distraction a merger causes for employees, customers, and managers. The distraction enables competitors to move more swiftly and capture significant business from BOTH companies who are attempting the merger. One problem is the computation of intrinsic value, which can only be calculated by the experts, which is so expensive.
Conclusion: After a critical analysis, we have found that the takeover will bring positive news for Trench Coat Plc. As there are number of things which has been showing positive trends, like the cost of capital, the entire equity of the firm and shares value. By considering all this the directors of both the companies must proceed.
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