(c) Explain the differences between the three broad approaches to post-merger

integration (i.e., the absorption, preservation and symbiosis approaches) Comment on

which of these may be appropriate in the circumstances of the case.

The absorption

The acquiring company full absorbs the target company. All organizations and processes of
the target company are to be fully integrated into the acquiring company. Acquirer imposes
the governance model and this is the natural way of developing a business through
acquisitions.

Preservation

The target company is preserved meaning that you leave the target company autonomous.
Nevertheless, integration of financial reporting and financial processes might make sense.
Acquirer’s focus is to keep the target’s sources of value intact. Fewer interdependencies shall
de-risk the buyer’s portfolio and some claim that more autonomy can be a factor of
motivation to the management team.

Symbiosis

In this approach the acquirer must ensure simultaneously boundary preservation and
boundary permeability. This is by far, the most complicated post-merger integration model
but also if successful the most rewarding.

Appropriate Integration Approach

In the above case the absorption approach will be ideal since both of these companies are in
the same line of business hence the absorption and creation of one entity will bring value to
the shareholders. VEX Tech is in the computer manufacturing business hence linking it fully
with Chip Hive plc will be less costly since they are both in the computer technology
industry.

(d) Examine the five practical impediments to divestures

Divesture

Divesture is the process of selling off a subsidiary business interests or investments. Blokhin,
(2020) defines divesture as disposing of an asset through sale, exchange or closure.

The five practical impediments to divestures are

  Accounting Complexities
 Operational Challenges
 Loss of employment
 Loss of an empire
 Lack of liquidity in the market

Loss of Employment

Divesture poses a great threat on employment for the both management and subordinates.
The buyer of the investment or company might have different ideas with regards to the future
of this company and bring its own management and subordinates whom they are familiar
with.

Accounting Complexities

Several accounting tasks must be completed before the divesture can take place. For example
one metric that needs to be calculated is the portion of the divested company’s debt that needs
to be allocated to the parent company and other third parties. There must also be
establishment of the capital structure of the divested entity. Additionally, if the divested
companies’ financial statements are to be audited, then the parent company needs to ensure
that the auditor’s conclusions are in sync with those of the company’s management.

Operational Challenges

The finance department of the selling company is a significant contributor to the operational
side of the divestment. Their primary function in the process is to measure the effects on the
company’s bottom line (net profits or net earnings). Hence, accurate record keeping and
financial reporting are necessities for successful divestment.

Loss of an Empire

Divesture also brings about the challenge of the loss of an empire especially in the
managements view. The pride and ego of managing a huge company can be threatened by
divesture since it means stream lining the operations of the business.

Lack of liquidity in the markets

Liquidity refers to the ease with which an asset or security can be converted into ready cash
without affecting its market price. Lack of liquidity in the markets will affect the divesture
since there will not easily find a buyer willing to pay the fair market price for the assets. This
therefore leads to undervaluation of the asset which brings a loss to the seller who wants to
divest. This is likely to occur especially when the markets are bearing or the economy is in a
depression for example the 2008 Global Financial Crisis.