FINANCIAL MANAGEMENT

Financial Management

Financial Management

Introduction

The report is related to the financial management of the company which especially focuses on the merger, acquisition and takeover. The report is based on the merger and acquisition in consumer goods sector which particularly focuses on takeover of Airea plc which is presented to the CEO so that the appropriate actions can be taken to acquire Airea plc.

Discussion

Mergers and Acquisitions

Merger is a formal process of two or more firms getting into a union to form into a single entity for the assets and liabilities transferred by the selling firm and absorbed by the buying firm. However, the takeovers or acquisitions occur between the target organization and the bidding organization. There might be a friendly or a hostile takeover. In the act of acquisition, the bidder company might purchase the assets or the shares of the target company.

Mergers and acquisitions enable companies to pool assets for creation of value. In order to gain more control and increase the value for business, mergers and acquisitions require solidifying the activities in a given industry. Success of M&A depends on how well a company like Airea PLC consolidates the operations in the market. Tactical fit concern of M&A is to seek profit in the short term, to acquire a company with the objective of increasing its value and then selling it at a higher price. The common factor in both cases is the stimulus that adds value to the acquired company (Angwin, 2001, 32-57).

In M&A transactions, management of an acquiring company is driven by a desire to manage more and more companies to gain efficiency. M&A leads to collaboration or sharing of experience that enable to achieve efficiency gains, or better utilization of company assets by the acquiring or merging company of underutilized assets. Other reasons include making the company more profitable by change in management. However, arrogance and power seem to dominate few mergers and acquisition that turn the action into a financial disaster. Successful mergers and acquisitions are dependent on the strategic thinking of senior management and how well synergy has been increased in comparison to the premium paid (David, 2004, 217-258).

In past 25 years, the mergers and acquisitions activity in UK and other European countries, in context of consumer goods sector has followed an evolutionary cyclical behaviour of stock markets during the last decade. Compare to potential synergy escalation, possibilities of failure are also high due to M&A. Main factors in this context contribute to the role of management and decision making based on behaviour. Overconfidence of CEOs in the significance of M&A results in creating financial instability for the company due to short-sighted strategic planning (Dyer, Kale and Singh, 2004, 108-115).

The main benefit of mergers and acquisitions is that the acquiring firm considers the merger or takeover as a profitable investment. It is not possible to determine all the factors that drive the success and failure of mergers and acquisitions because each case is unique. Therefore, this report aims at highlighting the role of CEO in M&A ...