Benefits Behind Mergers And Acquisitions Economics Essay

Benefits Behind Mergers And Acquisitions Economics Essay This assignment is going to include a discussion of the theoretical benefits behind mergers and acquisitions, a review of the empirical evidence and also two real world examples, one where value was created and one where it was destroyed. Theory The benefits of mergers and acquisitions stem from a concept known as synergy which can be illustrated using a formula, PVab =PVa + PVb + gains (Arnold, 2008: 866) also represented as, 2+2=5. The theory behind this is that a combined unit would be greater in value than the sum of its parts, basically meaning two firms together are worth more than the value of the firms if they were apart. One benefit of this is the increase in market power which is a firms ability to exercise a degree of control over the price of a product. This can be achieved in more than one way but for example if a firm merged with another and then found itself in a monopoly position it would have the ability to push up the price of its products because consumers would have fewer alternative suppliers. Another advantage is the increase in economies of scale achievable. In most cases the larger the size of a firm the lower the cost per unit of output because of cost advantages being better exploited. For example i f two firms in the same industry merged they could gain marketing economies of scale through joint advertising perhaps and also administration economies by sharing administrative activities and accounting. There would also be financial economies as funds borrowed on the capital market would be provided at lower costs and with more favourable rates of borrowing. Internalisation of transactions is also a benefit; if two firms at different stages of the production chain merged, a greater efficiency of co-ordination of the different levels may be the outcome. This could be achieved because of reductions in costs such as communication, monitoring, contract enforcement and bargaining. Usually entering in to a new market or industry takes years of effort and during the early period losses may even be incurred, however through the process of mergers and acquisitions this once daunting task can become much easier. By acquiring an existing firm that already posses the required skills and mark et strength it eliminates the need for them to be generated internally. There are also tax advantages of acquisitions in some countries because losses of subsidiaries can be used to offset present taxable profits of the parent company meaning a lower tax bill. Therefore acquiring firms which have accumulated tax losses may be beneficial; however this benefit is not present in the UK due to much stricter rules being in place. Another benefit of mergers and acquisitions would be risk diversification. A firm may be viewed as less volatile if its cash flows come from a wider range of sources meaning shareholders gain from a reduction in risk but with no decrease in return. The greater stability of earnings may also be appealing to lenders which could result in lower interest rates. Mergers and acquisitions are usually used as an instrument to create shareholder value (Sudarsanam 2003), this is the main objective; however there also seem to be managerial motives present. When a firm acquires another is consequently becomes a larger enterprise meaning managers have more responsibility and so may be justified to receive a much larger salary. Some may feel more successful and important because of this and this sense of achievement may become a personal driver for managers to carry out mergers and acquisitions. Another reason could be survival, the management team may begin to feel the best way to avoid being taken over or dominated is to grow themselves, especially if regular mergers are occurring in the industry the firm operates in. This could lead to firms not merging for just the benefit of shareholders but also to try and assure the survival of the management team. A question one may wish to ask is how the value of the benefits of mergers and acquisitions can be measured? The benefits of acquisitions are usually not easy or straightforward to put in to numerical form. For example the application of superior managerial skills or entry in to a new market cannot accurately be measured; even things such as competitive position and reputation with customers, the list goes on. These items will not be found on balance sheets so therefore the true value of a firm may not be presented; however one indicator which could perhaps value the benefit may be the firms share price. Empirical evidence Although the theory behind mergers and acquisitions suggest that they create value for both the shareholders of the offeror and offeree companies the empirical evidence doesnt always seem to support this. (Meeks 1977) conducted a statistical test to represent the effects of mergers, he took profits from the merged companies after the merger and compared them with the weighted average of the participants profits had they not merged based on their earnings prior to the merger. His conclusion was that merged profits were less than those that the participants would have received had they not joined forces. However some have questioned Meeks research There are weaknesses in Meekss work (Ulen, 1980: 234). This being said Alan Gregorys review of the long run performance of UK acquiring firms reached a similar conclusion the long-run shareholder wealth effects of recent acquisitions in the UK have been, on average, significantly negative (Gregory, 1997: 984). However a study to evaluate take overs in the UK from 1955-1985 suggest that both offeror and offeree company shareholders gain from mergers we find that mergers have, on average, been value-creating for shareholders as measured by equity market prices around the merger announcement date. Shareholders of targets gain, and bidder shareholders gain or do not lose. (Franks and Harris, 1989: 247). Empirical evidence of the overall wealth gains of target shareholders from stock mergers were reviewed by (Loughran and Vijh 1997). They found that target shareholders that sold out soon after the acquisition date gain from all acquisitions; however those who held on to the acquirers stock find their gains diminish over time. Studies on post merger performance of acquiring firms seem to generally forecast negative results as can be seen here We find that stockholders of the acquiring firms suffer a statistically significant wealth loss of about 10% over the five years following the merger completion. (Agrawal, Jaffe Mandelke r 1992: 1618) and also here We find that these takeovers have a positive but not always significant impact on profitability, and a negative impact on short and long run returns (Cosh, guest and Hughes 2005: 489). Real world examples In 2006 Disney bought Pixar for $7.4billion. The two companies had been working together prior to the merger but with two different sets of shareholders there were barriers that existed, however with the merger the two companies became able to collaborate freely and with ease. Pixar has doubled its yearly film output something that would have been unthinkable before the merger and with expert advice from Disney has improved vastly in fields such as advertising and merchandising. Pixar  movies tend to perform better than animated movies developed by Disney itself (Garrahan, 2010: 16), Toy Story 3 is on course to become the biggest grossing animated film ever released by Walt Disney after generating $630.2m in its first month in cinemas (Garrahan, 2010: 16). In 1994 BMW acquired Rover for  £800 million. Only six years later and after millions of pounds worth of investment they sold the company, The brand had declined too far to be rescued. The German group ploughed {XEU} 4bn into its English patient before getting out in 2000. (The financial times, 2005) The company was sold to the phoenix four for  £10! Who  bought Rover  from  BMW for [pounds sterling] 10 (Eaglesham Peel, 2008: 5). This was a huge disaster, some blamed it on communication When  BMW bought  the  Rover  business, communication with the German managers was even worse (exacerbated by political infighting on the German side). Failure was the inevitable and bitter result. (Lester, 2007: 8) and others on the fact that Rover may have been a lost cause to begin with Even the mighty  BMW, which  bought Rover  in 1994, had to accept in the end that the brand had declined too far or at least to give it a future would cost far too much money. (The financia l times, 2005) Conclusion To conclude having researched for example Meeks and Gregorys financial analysis of the empirical evidence and reviewing the real world examples discussed above one may argue that mergers and acquisitions on average may not be beneficial to the shareholders of the acquiring firms. Management tends to underestimate the level of organisation required and therefore take off more than they can chew. However as seen in the Disney-Pixar case mergers can benefit both the offeror and offeree at times. Wordcount: 1492

The Act of Sacrifice from Achilles and Gilgamesh Essay -- The Iliad Gr

The Act of Sacrifice from Achilles and Gilgamesh The act of sacrifice is a very important event in literature. Often, it can define and shape a character’s life and personality. The ancient texts discussed in class contain many diverse, yet equally meaningful examples of sacrifice. Even though these acts of sacrifice can occur for different reasons, each one has a similar purpose. The characters that perform such sacrifices are required to give up something they love, cherish or own in order to serve a greater purpose. Achilles from The Iliad must sacrifice his physical possessions to appease his gods. Gilgamesh is unwillingly forced to sacrifice his beloved brother. Cain from The Bible also forfeits material possessions, but he also gives up his own integrity, as well as eternal life in his Heaven. These sacrifices appear to differ in the severity of what is given up, but they are actually alike in the way each is used to accomplish certain goals. Achilles is an excellent example of one who performs sacrifice. In The Iliad, Achilles is a supreme and god-like warrior, but his many character flaws hold him from achieving his full potential. His rampant pride and unharnessed rage overtakes his other good qualities and causes him many hardships. Achilles hopes to reduce these flaws by sacrificing numerous possessions to the gods. He believes, as did most other Greeks of the time, that thee gifts would urge the gods to look favorably upon the givers. Objects, such as cows, pigs, and wine, were cooked in an extremely orderly manner. Any deviations from the proper method of offering the gifts would be seen as a sign of disrespect. Sacrifices are made to obtain or achieve something in the future. In the case of Achilles, his sacrifice was made in hope that the gods would control and possibly eliminate his rage and pride. Achilles’ gifts of animals and drink to the gods were viewed by the Ancient Greek public as normal, hon orable, and religious. Most citizens made some kind of offering to the gods, but the gifts were definitely not as lavish and extravagant as the offerings made by Achilles. Regardless of the sacrifice, the importance was found in how much the gift meant to the giver, and how often the gifts came to the gods. Like Achilles, Gilgamesh also made an extreme sacrifice in order to better himself and those around him. In Gilgamesh, the tit... ...necessary arrogance that stirred unrest in his people. After his sacrifice, he had known the joys of brotherhood, become wiser and humbler, and gained the respect of his people. The complete opposite of Gilgamesh’s case is Cain’s. He begins as a humble, faithful servant of God, and he is given a good job. But he makes inadequate sacrifices and compounds the problem by murdering his brother. At the end, he does not have his job, he has lost his loyal brother by his own hand, and most walk aimlessly across the earth for eternity. As can be seen, sacrifices take on many different shapes and forms. These sacrifices can be alike and different in many aspects, but they all are important in literature. Sacrifice molds the integrity and reputation of those making them, not only to the society in which they live, but also with the higher power that they worship. The sacrifices of Achilles, Gilgamesh, and Cain were all important in their respective cultures and were very influential in how these three will be looked upon throughout history. It is obvious that any sacrifice to be made must be carefully picked over and analyzed before it is enacted. Otherwise, one may wonder forever.

College Dropout Essay

In the article, â€Å"The Dropout Dilemma: One in four college freshman dropout†, Jonathan Whitbourne touches the issue of college students dropping out. Whitbourne provides insight into the top six reasons that college students drop out. According to American College Testing, â€Å"one in every four students leaves college before completing sophomore year† (cited in Whitbourne 1). While this article is well written, it could use some more facts and provide some of the author’s credentials. The article begins with a story about Michael Van Adams. He was an exemplary high school student with an outstanding academic record. After highschool, he thought he was ready to tackle any hurdle that was presented before him, including his college education. Michael was quickly proved wrong. High school students spend so much time trying to get into college that they are often forget the fundamentals needed to be prepared for college life. â€Å"A large number of students are Ill equipped for the challenges of college† (2). One of the main skills that these students are lacking due to the time consumed with admissions is the coursework; which can be drastically different than high school. Other factors include: no longer living at home; which for many students this is the first time, and managing time and money. When these factors are present, it can lead to unneeded stress. Many colleges have been studying why the dropout rate is so high and attempting to construct a course or program to prepare students . These â€Å"Survival Courses† (2) are to prepare students for the tasks that lie ahead. One school that has been providing a course for college preparation is the University of South Carolina since 1972 (2). The article also provides six of the top reasons that college student’s dropout. In addition to the reasons, the article also provides six survival strategies to help prepare and prevent new students from falling into the same pattern. The author does not provide his credentials or whether or not he is qualified to write this article. An extra step is needed to find out that he is the lead web editor at a corporation. The author began as an editorial intern in sports; therefore he is not exactly qualified to write on college dropouts. Though the author has been an editor for Healthy Kids’ Magazine, he is not an subject matter expert in the field. Nevertheless, because he does have research and editorial experience, this allows him to be taken seriously on the topic. Even without the actual author having all of the necessary qualifications; the article is clearly not biased and is completely objective. There is very limited presence of personal opinion and the facts, when presented, are undeniable within the text. The author has provided numerous of good examples of students that have come face to face with the horrors of being a new college student. The beginning of the article begins with an introduction about student named Michael VanAdams. As you get more into the content of the article there is a reference made about Sara Stanton. Though there is dialogue from these individuals there is no proof stating whether or not Whitbourne himself interviewed these students or if he just came across their stories. Using strong subject matter experts within the field can make an article or study more reliable. In the essay, Whitbourne also uses the expertise of Vincent Tinto and Robert Feldman. Tinto is the Chairman of the Higher Education Program at Syracuse University in New York. He is also the author of Leaving College: Rethinking the Causes and Cures of Student Attrition. In addition, Robert Feldman is the Director of Undergraduate Studies in the Department of Psychology at the University of Massachusetts. The combination of these individuals greatly contributes to the overall prestige of the article. Another factor that is important when writing articles is the prominent use of facts to back the author’s findings and results. Whitbourne did not use a lot of facts to back his article. The use of statistics, facts, quotations, and citations could have helped his article be more reliable. The statistics and references that were used were wonderful, nevertheless they were scarce. When a topic like this is being discussed the reader needs to feel confident in what he/she is reading. Without the proper statistics and citations the persuasiveness of this article can be questioned.

Pros and Cons of Earning a Masters Degree Before a PhD

Pros and Cons of Earning a Masters Degree Before a PhD As a potential applicant to graduate school you have a great many decisions to make. The initial decisions, such as what field to study, may come easily. However, many applicants struggle with choosing what degree to pursue, whether a master’s degree or PhD is right for them. Others know what degree they want. Those who choose a doctoral degree sometimes wonder if they should first complete a master’s degree. Do you need a master’s degree to apply to a doctoral program? Is a master’s degree an essential prerequisite for gaining admission to a doctoral program? Usually not. Does a master’s degree improve your odds of admission? Sometimes. Is it in your best interest to earn master’s before applying to PhD programs? It depends. Pros and Cons of Earning a Master's Before Applying to PhD Programs There are both advantages and disadvantages to earning a master’s before applying to PhD programs. Below are some of the pros and cons: Pro:  A master’s degree will introduce you to the process of graduate study. Without a doubt, graduate school is different from college. This is especially true at the doctoral level. A master’s program can introduce to you the process of graduate study and help you understand how it is different from undergraduate study.  A master’s program can help you make the transition to graduate school and prepare you for making the transition from college student to graduate scholar.   Pro:  A master’s program can help you see if you are ready for doctoral study. Are you ready for graduate school? Do you have the right study habits? Are you motivated? Can you manage your time? Enrolling in a master’s program can help you see if you have what it takes for success as a graduate student – and especially as a doctoral student. Pro: A master’s program can help you see if you are interested enough to undertake a PhD The typical college survey courses present a broad view of a discipline, with little depth. Small college seminars present a topic in more depth but it will not come close to what you will learn in graduate school. It is not until students are immersed in a field that they truly come to know the depth of their interest. Sometimes new grad students realize that the field is not for them. Others complete the master’s degree but realize that they have no interest in pursuing a doctorate. Pro: A masters may help you get into a doctoral program. If your undergraduate transcript leaves much to be desired, a master’s program may help you improve your academic record and show that you have the stuff that competent graduate students are made of. Earning a master’s degree shows that you are committed and interested in your field of study.  Returning students may seek a master’s degree to obtain contacts and recommendations from faculty. Pro: A master’s degree can help you change fields. Are you planning on studying a different field than your college major? It can be hard to convince a graduate admissions committee that you are interested and committed to a field in which that you have little formal experience. A master’s degree can not only introduce you to the field but can show the admissions committee that you interested, committed, and competent in your chosen field.   Pro: A master’s degree can offer a foot in the door to a particular graduate program. Suppose you hope to attend a specific graduate program. Taking a few graduate courses, nonmatriculated (or nondegree-seeking) can help you learn about the program and can help faculty learn about you. This is even more true for master’s students. In many graduate programs, master’s and doctoral students take some of the same classes. As a master’s student, you’ll have contact with graduate faculty – often those who teach in the doctoral program. Completing a thesis and volunteering to work on faculty research can help faculty get to know you as a competent and promising researcher. A master’s degree might offer you a foot in the door and a better chance of gaining admission to the department’s doctoral program. However, admission is not guaranteed. Before you choose this option, be sure that you can live with yourself if you don’t gain admission. Will you be happy with a terminal master? Con:  A master’s degree is time-consuming. Typically a full-time master’s program will require 2 years of study.  Many new doctoral students find that their master’s coursework doesn’t transfer. If you enroll in a master’s program recognize that it will likely not make a dent in your required doctoral coursework. Your  PhD  will likely take an additional 4 to 6 years after earning your master’s degree. Con:  A master’s degree is usually unfunded. Many students find this a big con: Master’s students usually do not receive much funding. Most master’s programs are paid for out-of-pocket. Are you prepared to potentially have tens of thousands of dollars of debt before you begin your PhD.?  If you choose not to seek a doctoral degree, what employment options accompany your master’s degree? While I’d argue that a master’s degree is always of value for your intellectual and personal growth, if the salary-return of your degree is important to you, do your homework and think carefully before enrolling in a master’s program prior to seeking your PhD. Whether you seek a master’s degree before applying to doctoral programs is a personal decision. Also recognize that many PhD programs award master’s degrees along the way, typically after the first year and completing exams and/or a thesis.