Mergers and acquisitions-B Coursework Example | Topics and Well Written Essays - 2500 words

Mergers and acquisitions-B - Coursework Example Are any Sell-Offs Likely? 10 7. Risk – Given that the Majority of Takeovers Destroy Shareholder Value, What Are the Major Risks? 11 Conclusion 13 References 14 Introduction Evidences reveal that M&As can be quite risky to lead the pathway of the acquiring company’s destruction and on the other hand, be highly beneficial to assist the company in the attainment of its long-term objectives. Despite the immense risk, companies opt for M&As in order to gain the benefits of operational leap, integration, larger customer base, channels and higher competencies (Galpin & Herdon, 2007). One of the most risky acquisitions in the recent past can be identified as the acquisition of National Westminster Bank (NatWest) by the Royal Bank of Scotland (RBS) in the year 2000. It is recorded as one of the most daring acquisitions, due to the fact that during the period of acquiring NatWest, RBS was recognised to be smaller than the target company. It took a great effort from RBS’s e nd to complete the deal and rewarded it the reputation of one of the leaders in the British Banking Industry (Larsen, 2007). With this concern, the paper will examine the entire process of acquisition considering the various aspects, such as strategic fitness of NatWest, regulatory factors influencing the process, justification of the valuation of acquisition, defence tactics applied, implementation of integration and risks involved in the acquisition. 1. Strategy – How Does The Target Company Appear To Fit into the Acquirer’s Long-Term Strategy? According to the experts, strategic fitness of the target company in M&A is considered to be one of the most significant aspects while determining the plan. Because, underneath every M&A the observed motive of the acquiring company or the merging companies are to increase the value of the two companies together which would be more than the sum of the total values of both the companies. Strategic fit of the target company, thus , holds a significant position to increase the overall value of the acquirer (Lee & Pennings, 1996). The strategic fit of the acquisition and the target company can be analysed in depth considering the fact that M&As are often termed as a past of the strategic objective of the acquirer to attain growth and higher competency (Edinburgh Business School, 2008). The objective can be well identified in the acquisition of NatWest by RBS. It was a horizontal acquisition, which means that the target company and the acquirer belonged to similar product line and also to a similar cultural background. This reduced the constraints in terms of cultural divergences. The prime objective of the acquisition depended on the fact that RBS was facing major difficulties in terms of shrinking stock prices to approx 32% and required growth. Similarly, with an increased competition and reducing market share led by the falling stock price and increased operational costs; NatWest opted to go for an M&A in or der to survive in the industry (Mahar & Polson, 2003). Being three times larger than RBS, NatWest was able to reward a higher market share and increased balance sheet value quite instantly after the acquisition with a paid bid of ?21 billion (NatWest, n.d). Subsequently, the stock price of RBS increased rapidly over the next two years (Mahar & Polson, 2003). Therefore, it is quite apparent that the acquisition proved to be a successful one in the short-term as well as in the long-term perspective. The market

Pricing Strategies of Indian Initial Public Offering Essay

Pricing Strategies of Indian Initial Public Offering - Essay Example The costs of undertaking an IPO are very large and as such companies prefer using another method herein referred to as private placements. This is partly because the costs of a placing are far lower than an offer for sale, and partly it is because in 1996 the Stock Exchange scrapped its rule requiring that new issues worth more than  £50m should offer a proportion to the public(Global-Investor 2008). With the introduction of the book-building process, and the scrapping of the concept of par value for shares, the pricing process has become more open. It is now possible to follow the fixed price route or the book-building route for an issue. In case of the book-building process, the price is not fixed, but a price band is suggested. The investors can bid for any price between the cap and the floor, and the quantum of subscription. One of the lead managers will work as the book-runner. The final issue price is determined as the cut-off, at which the issue is fully subscribed. The book -building could be used for 75% of the issue, which could be subscribed by institutions and high net worth individuals, and the balance 25% could be issued to individual investors as a fixed price issue, the price being the cut-off determined via book-building. It is also possible to have 100% book-built issues, where the individual investors also take part in the book-building process. The book-building process can be completely automated (online) using the systems of the stock exchanges. This process is known as e-IPO. The price band at present is 20% i.e. the cap could only be 20% higher than the floor. The price band could be revised during the bidding period, to a maximum of 20% on either side. The public issue should be open for a minimum of five days, and a maximum of ten days. The post-issue promoter holding should be at least 20%, whereas earlier it was 50% in the case of premium issues. If the price band is revised, the bidding period