Mergers and Acquisitions Essay Example | Topics and Well Written Essays - 1000 words - 1

Mergers and Acquisitions - Essay Example When big conglomerates are exposed to excessive risk owing to the fact that maximum investments are made in one or few specific businesses, they choose to diversify business and acquire new firms. Another important financial reason behind mergers is that of achieving economies of scale. The term, economies of scale, refers to cost advantages that a firm is able to enjoy because of its size, scale of operation and output. The cost per unit is lowered with the increasing scales. Thus, the cost of operations is relatively lower in the combined business firm. Berkshire is a US-headquartered multinational conglomerate holding firm that has subsidiaries engaged in different business activities, including property and casualty insurance, energy, finance, food, freight rail and so on and so forth. 3G Capital and Berkshire Hathaway have collectively acquired the joint control of Heinz by way of purchasing shares. Heinz is one of the well-known brands in the global food industry and has a history of providing tremendous value to its shareholders. Heinz had displayed a strong and sustainable growth over years. Hence, Heinz is a safe and favorable company to invest in. Given that both the acquiring partners were previously engaged in the food industry, the merger with Heinz has added to their existing product lines. Moreover, the companies will be able to gain access to a very strong distribution channel that generates 25% revenue from the emerging markets and approximately two-third of the same from outside the United States. By gaining access to the extensive distribution channels of Heinz, the two companies can in future add more companies to the portfolio, thereby further leveraging the system for bigger and costlier acquisition efforts. The Heinz brand generates about 40% of the sales and has a huge competitive advantage in sauces. The Heinz portfolio has 15 brands that are capable of yielding more than $100 million sales on an annual basis (Stahl, Matzler and

Financial Information Essay Example | Topics and Well Written Essays - 750 words

Financial Information - Essay Example There are many evaluation methods followed and the most relevant of them are the evaluation based on the Economic Value Added (EVA) which is Net Operating Profit Minus Adjusted Taxes reduced by (Invested Capital*Cost of Capital). This method takes into account the opportunity costs of capital. EVA too suffers from the drawbacks as from accounting. Another theory, Shareholder value theory suggests that through the interests of the stake holders, the shareholder value can be reaped. This is for ensuring return satisfaction to all the interested parties in the long run. The stakeholder theory aims at a collective interest of all stakeholders or sees the realization of their goals as the ultimate objective. Double value creation system is also followed where a company increases its customer value through its operations as well as creates its shareholder value through the sale of its produce. Thus, it could be noted that the company value could be increased only if both the shareholders and stakeholders interest are considered simultaneously while doing the performance evaluation. Present Value of Abnormal Earnings (PVAE), which will b... Present Value of Abnormal Earnings (PVAE), which will be available with the Present Value of Expected Dividends (PVED) and Abnormal Earnings based on Capital Employed, states the value in efficient markets as: MVE = CSE + PVAE This results in the distortions or disparity between the MVE and the CSE (market value and book value) and the conditions for this are (i) Economic rents (unbiased accounting) (ii) Accounting distortions (Perfectly competitive equilibrium) Thus, the information bearing upon the performance evaluation of a company helps in explaining the reason for the difference between the market value and the book value. Ideally, it could be inferred that the most important things to be considered in value creation processes are: - The Performance evaluation should be able to provide information for proper decision-making and ensure feedback. - The kind and nature of the information collected and the source from which the information is collected for valuations are therefore significant. The source, its nature, the methods used for valuation, the coherency, the adaptability with the strategic objectives etc serve as crucial indicators. Discuss the relevance of financial information in the context of the valuation of internet stocks. The main characteristics of internet stocks are that they are younger, fast-growing, riskier and larger when compared to the non-internet stocks. Nevertheless, the capital requirements of internet companies are very high. They need capital to establish the technological architecture, create a pool of customer base, and also have to spend a major portion on the sides of Research and Development, Marketing etc. On contrary, the