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73587030-MF0011

73587030-MF0011

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Published by Sunil Kumar

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Published by: Sunil Kumar on Jun 05, 2012
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11/03/2012

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 NAME : PAGHADAL SHITAL MAHESHKUMARROLL NO. : 511015434SUBJECT : Mergers and AcquisitionsMF 0011Master in Business Administration
Semester 3Assignment Set- 1
Q.1 What are the basic steps in strategic planning for a merger?
 
Ans.
Basic steps in Strategic planning in Merger :
Any merger andacquisition involve the following critical activities in strategic planningprocesses. Some of the essential elements in strategic planning processes of mergers and acquisitions are as listed here below :1. Assessment of changes in the organization environment2. Evaluation of company capacities and limitations3. Assessment of expectations of stakeholders4. Analysis of company, competitors, industry, domestic economy andinternational economies5. Formulation of the missions, goals and polices6. Development of sensitivity to critical external environmental changes7. Formulation of internal organizational performance measurements8. Formulation of long range strategy programs9. Formulation of mid-range programmes and short-run plans10. Organization, funding and other methods to implement all of theproceeding elements11. Information flow and feedback system for continued repetition of allessential elements and for adjustment and changes at each stage12. Review and evaluation of all the processesIn each of these activities, staff and line personnel have importantResponsibilities in the strategic decision making processes. The scope of mergers and acquisition set the tone for the nature of mergers and acquisitionactivities and in turn affects the factors which have significant influence overthese activities. This can be seen by observing the factors considered duringthe different stages of mergers and acquisition activities. Proper identificationof different phases and related activities smoothen the process of involved inmerger
Q.2 What are the sources of operating synergy?
Ans.
 
Sources of Operating Synergy 
Operating synergies are those synergies thatallow firms to increase their operating income, increase growth or both. Wewould categorize operating synergies into four types:1.
Economies of scale
that may arise from the merger, allowing the combinedfirm to become more cost-efficient and profitable. Economics of scales can beseen in mergers of firms in the same business
For example :
two bankscombining together to create a larger bank. Merger of HDFC bank withCenturian bank of Punjab can be taken as an example of cost reducingoperating synergy. Both the banks after combination can expect to cut costs
 
considerably on account of sharing of their resources and thus avoidingduplication of facilities available.2.
Greater pricing power
from reduced competition and higher market share,which should result in higher margins and operating income. This synergy isalso more likely to show up in mergers of firms which are in the same line of business and should be more likely to yield benefits when there are relatively few firms in the business. When there are more firms in the industry ability of firms to exercise relatively higher price reduces and in such a situation thesynergy does not seem to work as desired.
An example
of limiting competitionto increase pricing power is the acquisition of universal luggage by Blow Plast. The two companies were in the same line of business and were in directcompetition with each other leading to a severe price war and increasedmarketing costs. After the acquisition blow past acquired a strong hold on themarket and operated under near monopoly situation. Another example is theacquisition of Tomco by Hindustan Lever.3.
Combination of different functional strengths
, combination of differentfunctional strengths may enhance the revenues of each merger partner thereby enabling each company to expand its revenues. The phenomenon can beunderstood in cases where one company with an established brand name lendsits reputation to a company with upcoming product line or a company. Acompany with strong distribution network merges with a firm that hasproducts of great potential but is unable to reach the market before itscompetitors can do so. In other words the two companies should get theadvantage of the combination of their complimentary functional strengths.4.
Higher growth
in new or existing markets, arising from the combination of the two firms. This would be case when a US consumer products firm acquiresan emerging market firm, with an established distribution network and brandname recognition, and uses these strengths to increase sales of itsproducts.Operating synergies can affect margins and growth, and throughthese the value of the firms involved in the merger or acquisition.Synergy results from complementary activities. This can be understood with thefollowing example
Example :
Consider a situation where there are two firms Aand B. Firm A is having substantial amount of financial resources (havingenough surplus cash that can be invested somewhere) while firm B is havingprofitable investment opportunities ( but is lacking surplus cash). If A and Bcombine with each other both can utilize each other strengths, for examplehere A can invest its resource in the opportunities available to B. note that thiscan happen only when the two firms are combined with each other or in otherwords they must act in a way as if they are one.
Q.3 Explain the process of a leveraged buyout.

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