scroll to top
Stuck on your essay?
Get ideas from this essay and see how your work stacks up
Word Count: 522
Look at any major takeover or merger in the news and youll come across the concept of synergiesFor exampleThe deal has potential synergies that make some observers droolThats the Wall Street Journal commenting on Time Warners merger with AOL in 2000 How wrong they wereBut sometimes the doubters are also proved wrongBack in 2004 investors and analysts were doubtful that Spanish banking giant Santander would be able to achieve its ambitious plan of stripping out 300million of costs from Abbey National when it made a 96bn bid In fact Santander delivered the 300million of cost synergies a year ahead of schedule Profits at Abbey which were 16million in the year of takeover rose to 15bn at Santander UK in 2009More recently the Kraft Foods takeover of Cadbury involved the acquirer Kraft assuming significant potential for cost and revenues synergies to help justify the price paid for Cadbury At the time of the deal Kraft targeted around 450million of annual cost savings by the end of the third year It remains to be seen whether Kraft will achieve this targetThe role of synergies in MAThe primary objective of any takeover is tocreate value for shareholdersthat exceeds the cost of the acquisition In fact synergies are fundamentally the only tangible justification for a takeoverSynergies represent the extra value that can be created from the takeoverAssuming that the buyer has to pay a reasonable price for the takeover target then no value has been created at that pointFor example consider a business valued at 10 million by the market eg from the market capitalisation on the stock marketA buyer comes along and after negotiation anddue diligence agrees to pay 13 million to complete the takeover The buyer has paid abid premiumof 30 or 3 million to complete the takeoverThe shareholders of the target business are happy But the shareholders of the buyer business will need to be convinced that the price was worth paying They have had to
@Kibin is a lifesaver for my essay right now!!
- Sandra Slivka, student @ UC Berkeley
Wow, this is the best essay help I've ever received!
- Camvu Pham, student @ U of M
If I'd known about @Kibin in college, I would have gotten much more sleep
- Jen Soust, alumni @ UCLA