Implications for Gearing, Financial Risk and Cost of Borrowing | Online Assignment Help
Mergers and acquisitions often grab the headlines due to the huge amounts of money involved and the public competition for shareholders’ support. Although they can provide a quicker means of achieving strategic objectives, they can also result in remarkable failures. This calls for a thorough appraisal of the target company.
a) Critically evaluate the arguments for and against the use of mergers and acquisitions as a method of corporate expansion. Support your arguments with real world examples.
b) Evaluate the use of ‘cash offer’ and ‘share exchange’ as a form of consideration for mergers and acquisitions.
I. In discussing ‘cash offer’, assume that the bidding company has no surplus cash and must use debt finance or rights issue to raise the cash. The discussion should include but not limited to the following areas:
Implications for gearing, financial risk and cost of borrowing due to likely changes in post- acquisition capital structure of the bidding company.
Impact of the financing source (i.e. debt finance or rights issue) on the shareholders of the bidding company
Impact of the ‘cash offer’ on the target company’s shareholders
II. In the case of ‘share exchange’, the discussion must cover the benefits and challenges of using such a scheme on the bidding company, the target company, and their shareholders.
c) Critically evaluate the main reasons for the high failure rate of mergers and acquisitions in enhancing shareholder value. Support each reason with real world examples