Reasons why a business seeking to maximize the wealth of its shareholders may wish to takeover anoth

There is always an undeniable and unavoidable conflict between the management of the acquiring firm and the management of the acquired firm.

How Do Companies Maximize Shareholder Wealth?

The current article lists and explains most of the common of those factors. All those involved with the takeover ought to work with a positive spirit if success is to be attained from a takeover.

Profit vs. Wealth Maximization

A takeover is generally viewed as an important tool in the economies of scale business strategy. This is attained during the restructuring and adjustment period when operations are streamlined and integrated after the takeover.

By Rob Renaud Updated December 28, — 1: Once a business has been taken over by another business, the competition that previously existed between the two firms dies off as the two businesses become a single entity in the market competing against other businesses in the market. Therefore, it becomes very expensive trying to beat this competition and gain a larger market share with the existence of all the competing brands and businesses.

It further defines it as a change in the control interests either through a friendly or hostile acquisition of a corporation. Economic Value Added EVA measures the opportunity cost of raising capital in order to calculate the risk associated with maximizing shareholder wealth. Stock buyback happens when a company purchases its own stock, either on the open market, or directly from its shareholders; it's known as a "share buyback", or "stock repurchase".

With acquisition of the new business, it is possible to easily eliminate synergies and redundancies from the business. Takeovers guarantee an increased market share for the acquiring business which in turn translates to reduced competition and improved market performance.

This fact is based on a simple mathematical formula. In this case, the total costs of production and management will be lowered while production yield will be increased. Payments will be issued to the target business as per to terms and schedules that will be agreed during the takeover negotiation.

Similarly, the acquiring firm should have some time to advertise the business as effectively as it will need regarding the new management.

M&A: What Motivates a Company to Takeover Another Company

For a business, it is not necessary that profit should be the sole objective; it may concentrate on various other aspects like increasing sales, capturing more market share etc, which will take care of profitability. So, to evaluate various alternatives for decision making, cash flows are taken into consideration.

In wealth maximization, major emphasizes is on cash flows rather than profit. The acquisition diversified Kraft's candy line with more than 40 brands, increased revenue and sales as well as the company's international presence, especially in emerging markets, according to articles by Bloomberg Businessweek and The Wall Street Journal.

There should be an integration procedure that will allow adjustments for all the agreed terms to be effectively rolled out between the two parties.

There are two main explanations for this incidence. Business identification This is the first phase during a takeover process. Unfortunately, not every stock repurchase scenario is a positive one.

There should be an integration procedure that will allow adjustments for all the agreed terms to be effectively rolled out between the two parties. It calls for quite a significant chunk of investment to effectively avoid such a conflict and guarantee timely success in the market after the takeover.

Why do companies merge with or acquire other companies?

These factors vary from one transaction to another depending on the ambitions behind each business in the market. Profit vs Wealth Maximization is a common but crucial question. The ultimate goal of financial management is to maximize the wealth of its shareholders.

At times, wealth maximization may create conflict, known as agency problem. This describes conflict. There are a number of reasons why a company’s stock price may currently be lower than it reasonably should be, including a one-time scandal or negative news event, or.

Mergers and acquisitions sometimes happen because business firms want diversification, such as a broader product offering. If a large conglomerate thinks that it has too much exposure to risk because it has too much of its business invested in one particular industry, it might acquire a business in another industry for a more comfortable balance.

Another reason companies take over other companies is to diversify products and expand new revenue streams. One example is Kraft's takeover of Cadbury for $ billion. - objective of firm is to make the most efficient use of the firm's resources and thereby maximize the value of the firm for its owners, that is, to maximize shareholder wealth.

Also, Michael winforlifestats.com argued that "a firm's value can not be maximized if the management board or shareholders ignores the interest of its stakeholders" (Michael winforlifestats.com, ). Thus, I agree with the argument that the main goal of a firm is to maximize shareholder wealth but it does not mean that management should disregard stakeholders.

Reasons why a business seeking to maximize the wealth of its shareholders may wish to takeover anoth
Rated 5/5 based on 37 review
Stock Buyback: Why Do Companies Buy Back Stock? (Updated )