Name: Kevin

NIM: 2201757244

1. Explain the motives for merging

GROWTH OR DIVERSIFICATION, rather than relying on internal growth, companies can achieve faster
growth or diversification of objectives by merging with an existing company with less costly than
developing the necessary capacity and avoid risk regarding design, manufacture, sales or new
products.

SYNERGIES, financial benefits from merging with other company such as economies of sales, increased
in marketplace power, or enhanced products portfolio, and contribute to revenue growth and profit
margin gains. Synergies are more effective when merging with company of the same line due to the
reduction employee and redundant function.

FUND RAISING, company can gain funds from merging when the company itself is having trouble in
their liquidity or obtaining funds for its own expansion. Often, one company will merge with high
liquidity company or “cash-rich” company.

INCREASED MANAGERIAL SKILL OR TECHNOLOGY, company can merge when one company cannot
fully develop due to lack of efficiency or workforce needed, it can merge with a company that can
fulfill the gap, making the company after merging, more efficient and fully develop.

TAX CONSIDERATION, company can merge also to lower the tax it needs to be paid, when one
company merge with another company that is carrying tax loss carryforward, which can be applied
against the future income of the merged company to reduce tax.

2. Differentiate between Friendly vs Hostile takeovers

FRIENDLY TAKEOVER, occurs when one company acquires another company with both boards of
director and shareholders approving the takeover transaction.

HOSTILE TAKEOVER, occurs when one company attempt to acquire another company, while the
targeted company without the agreement of its boards of director. The method usually used is by
buying enough shares from the targeted shareholders, then it can approve itself for a merger or point
its own board of director

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Name: Kevin
NIM: 2201757244

3.

Water Wors is evaluating a proposal to acquire Plumbing enterprise for $3million. Water Worx is
aware that some of plumbing Enterprises' redundant assets can be sold for $940,000 immediately
after the acquisition. Plumbing has a cash balance of $850,000 at the time of the acquisition. Estimates
indicate that Water Worx will be able to generate after-tax cash inflows of $290,000 per year for the
6 years from the acquisition. Water Worx has a 12% cost of capital. should the company make the
acquisition?

Yes, because water wors will pay for $3 million dollars, but with the selling of redundant asset of
$940.000 and the cash balance of &850.000, and a total of $1.790.000 dollars, actually water wors is
paying $ 1.210.000 for the firm. And with the after-tax cash inflow of $290.000 per year actually it is
generating 24% return per year which exceed the cost of capital of 12%, therefore water wors should
make the acquisition

- Strategic vs financial mergers

STRATEGIC MERGERS, strategic merger focus on achieving economies of scale, increasing market
share, improving raw materials sourcing and distribution. Take number 3 case for an example, Water
Wors should merge with/ acquired plumbing enterprise since both company have synergies therefore
making the company more effective and the performance exceed before both companies were
merged.

FINANCIAL MERGERS, financial merger is usually done to improve cash flow and to reduce cost
drastically and sell unproductive asset or other asset that are not compatible with the firm’s core
business. Take number 3 case again for an example, if Water wors acquires Plumbing enterprise, sure
water wors will pay for $3 million dollars, but with the selling of redundant asset of $940.000 and the
cash balance of &850.000, and a total of $1.790.000 dollars, actually water wors is paying $ 1.210.000
for the firm. And with the after-tax cash inflow of $290.000 per year actually it is generating 24%
return per year which exceed the cost of capital of 12%

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