Question D only
d) Explain what are referred to as “managerial” motives for merger and acquisition activity, identifying and of these that might be relevant in the case of Tambaku PLC and Loja Limited.
Quotes from the coursework may be related:
CEO also believes that rapid growth in the overall size of the firm is necessary to be able to compete effectively with bigger rivals.
Given the declining consumption of tobacco products, it is essential for the firm to diversify its operations to reduce overall risk.
The injection of the surplus funds into Loja Limited would result in Loja’s earnings increasing by 10% in the first year after takeover.
(more on the link above)
Undertaking a merger will increase the shareholders wealth, due to synergies being consolidated which increases the value of the newly created business.
1. Value creation
– Revenue synergies – improving company’s revenue-generating ability i.e. Market Expansion, Product Diversification, and R+D activities. ‘Tambaku PLC has decided to make a bid to acquire Loja Limited, an unquoted company which operates a chain of supermarkets’. –> Linked to market expansion, TPLC is a tobacco company, LLTD operates a chain of supermarkets.
– Cost synergies – reduce the company’s revenue-generating ability i.e. access to new technologies, and even elimination of certain costs, may improve the cost structure of a company. (not really related, I don’t think, but if you find its related)
Merging = for diversification reasons, such as its business operations, entering into new markets or offering new products or services, to help diversify risks relating to company’s operations. However, shareholders can diversify risk through investment portfolitos, merger = long and risky transaction. Related to the ‘Values creation: revenue synergies’.