CASE IN FINANCE

TEOH BEI NING

981014016152
Contents

Introduction ....................................................................................................................... 3

Task 1 ................................................................................................................................ 4

Task 2 ................................................................................................................................ 7

Summary ........................................................................................................................... 9

Reference ........................................................................................................................ 10

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Introduction

Finance is a broad term that describes activities associated with banking, leverage or

debt, credit, capital markets, money, and investments. Basically, finance represents

money management and the process of acquiring needed funds. Finance also

encompasses the oversight, creation, and study of money, banking, credit, investments,

assets, and liabilities that make up financial systems. Finance is a system that involves the

exchange of funds between the borrowers and the lenders and investors. It operates at

various levels from firms to global to national levels. Thus, there are many complexities

involved in it related to markets, institutions, etc. There are two main types of financing

available for companies: debt and equity. Debt is a loan that must be paid back often

with interest, but it is typically cheaper than raising capital because of tax deduction

considerations. Equity does not need to be paid back, but it relinquishes ownership

stakes to the shareholder. Both debt and equity have their advantages and disadvantages.

Most companies use a combination of both to finance operations.

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Task 1

Along with globalization, merger and acquisition has become not only a method of

external corporate growth, but also a strategic choice of the firm enabling further

strengthening of core competence. The megamergers in the last decades have also

brought about structural changes in some industries, and attracted international

attention. The reasons behind consolidating the business are varied and may range from

an increased market share to international expansion. Every business combination is

guided by a strong reason. A number of motivations for merger and acquisition are

proposed in the literature, mostly drawn directly from finance theory but with some

inconsistencies. From a legal point of view, a merger is a legal consolidation of two

entities into one, whereas an acquisition occurs when one entity takes ownership of

another entity's stock, equity interests or assets. Interestingly, distressed firms are

found to be predators and the market reaction to these is not always predictable.

Several financing options are associated with takeover activity and are generally

specific to the acquiring firm. A merger case may well involve all aspects in a single

transaction, that is, it can have a horizontal, vertical and conglomerate dimension at the

same time. It is expected that when two companies merge to form a new bigger

company, the value of the new entity will be more than the combined value of two

separate companies. The terms "mergers" and "acquisitions" are often used

interchangeably, although in actuality, they hold slightly different meanings. When one

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company takes over another entity, and establishes itself as the new owner, the purchase

is called an acquisition. From a legal point of view, the target company ceases to exist,

the buyer absorbs the business, and the buyer's stock continues to be traded, while the

target company’s stock ceases to trade.

On the other hand, a merger describes two firms of approximately the same size, who

join forces to move forward as a single new entity, rather than remain separately owned

and operated. This action is known as a "merger of equals." Both companies' stocks are

surrendered and new company stock is issued in its place.

Unfriendly deals, where target companies do not wish to be purchased, are always

regarded as acquisitions. Therefore, a purchasing deal is classified as a merger or an

acquisition, based on whether the purchase is friendly or hostile and how it is

announced. In other words, the difference lies in how the deal is communicated to the

target company's board of directors, employees and shareholders. Nestle, for instance,

has performed a variety of acquisitions lately.

The term mergers and acquisitions refer to the process of one company combining with

another. In an acquisition, one company purchases the other outright. The acquired firm

does not change its legal name or structure but is now owned by the parent company.

A merge is the combination of two firms, which subsequently form a new legal entity

under the banner of one corporate name. M&A deals generate sizable profits for the

investment banking industry, but not all mergers or acquisition deals close. And the last,

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post-merger, some companies find great success and growth, while others fail

spectacularly.

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Task 2

The first company is Michael Kors acquires Jimmy Choo. Michael Kors has

agreed to purchase the luxury shoemaker for approximately $1.2 billion, adding a

coveted global brand to the U.S. retailer's stable as its own handbag and

accessories sales suffer. They are maybe three reason that Michael Kors acquires

Jimmy Choo.They are planning for a stronger presence in the shoe category.

Michael Kors isn’t known for their shoes, and shoe commerce revenue is a huge

market they’ve been missing out on. The second reason is Michael Kors is a very

American brand. They aim to become an international brand. Jimmy Choo is a

non-American brand, which attracts non-American consumers, and helps to

internationalize Michael Kors. The third reason is Michael Kors has lowered

quality and price, heavily relying on discount outlets for a big chunk of revenue.

Turning its back on the luxury market. This isn’t a sustainable business practice,

as you can only lower your prices so much. This acquisition is Michael Kors’

attempt at a luxury market come-back.

The second merger is Apple buys Shazam. iPhone maker

Apple AAPL confirmed that it has acquired Shazam for $400 million, a

company that lets users identify songs, movies, TV shows, and

commercials from short audio clips. The tech giant will be able to use

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Shazam to boost Apple Music. It also hopes to integrate Shazam m ore

deeply into iOS, and utilize the app's augmented reality technology to

improve its ARKit efforts. The main reason that Apple buy Shazam is not

just about the music recognition. Shazam, if you missed out on downloading

the app in the last decade since it appeared on the App Store, allows you to record

a sample of any audio and ask for it to be identified. Apple music might develop a

memory. iTunes already has a wish list feature that functions similarly, but once

Apple and Shazam become one and the same, that list of songs you've recently

heard could integrate with Apple Music, and the service could create entire

playlists around songs you’ve asked about. Shazam creates a funnel to Apple

Music. Besides, Apple wants to own the music pipeline. Lastly, the data Apple

collects will be immense.

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Summary

Finance is defined as the management of money and includes activities like investing,

borrowing, lending, budgeting, saving, and forecasting. The easiest way to define

finance is by providing examples of the activities it includes. There are many different

career paths and jobs that perform a wide range of finance activities. There is a wide

range of topics that people in the financial industry are concerned with.

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Reference

1. https://efinancemanagement.com/mergers-and-acquisitions/motives-of-mergers

2. https://www.investopedia.com/terms/m/mergersandacquisitions.asp

3. https://economics.soc.uoc.gr/wpa/docs/paper2mottis.pdf

4. https://link.springer.com/referenceworkentry/10.1007%2F978-0-387-26336-6_53

5. https://en.wikipedia.org/wiki/Mergers_and_acquisitions

6. https://www.investopedia.com/terms/f/financing.asp

7. https://www.investopedia.com/terms/f/financing.asp

8. https://www.quora.com/Why-did-Michael-Kors-decide-to-buy-Jimmy-Choo

9. https://www.techradar.com/news/why-did-apple-buy-shazam-here-are-five-potential-

and-particularly-good-reasons

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