|TMA Assignment1 |
|MBA5924 Financial Strategy |
|To: Danie Lourens, Tutor |
|From: Jojo Joseph George, Student Number: 72402873 |
In case of mergers and takeovers, operating and financial synergy needs to be obtained. This synergy is obtained through:
- an increase in the size of the business, leading to economies of scale such as bulk buying,
- an opportunity to eliminate duplicate resources such as premises and equipment,
- an increase in market power, leading to higher sales revenues and higher profits,
- combining complementary resources resulting in a stronger, more competitive business.
- the replacement of an existing management team with a more efficient, more motivated management team who are capable of exploiting existing resources more fully.
- better use of surplus cash, through the availability of profitable opportunities,
- potential tax benefits, where a company may use accumulated tax losses of the acquired company to offset against tax liabilities,
- greater borrowing capacity, which may help in lowering the cost of capital and in increasing profits through the gearing effect.
Synergies between the two businesses, which are quite different in nature, are often very difficult...