In: Accounting
1.What are the steps that the company has to do in time of merger transaction? And What are the obstacle that may lead to merger failure?
2.What are the Exceptions to not to consolidate the financial statement and what are the benefits of consolidating the financial statements
1
Mergers are part of strategic management of any business. It involves consolidation of two businesses with an aim to increase market share, profits and influence in the industry.
Mergers and Acquisitions are complex processes which require preparing, analysis and deliberation. There are a lot of parties who might be affected by a merger or an acquisition, like government agencies, workers and managers. Before a deal is finalized all party needs to be taken into consideration, and their concerns should be addressed, so that any possible hurdles can be avoided.
Steps in a Merger
There are three major steps in a merger transaction: planning, resolution, and implementation.
1. Planning, which is the most complex part of the merger process, entails the analysis, the action plan, and the negotiations between the parties involved. The planning stage may last any length of time, but once it is complete, the merger process is well on the way.
More in detail, the planning stage also includes:
2. The resolution is simply management's approval first, then by the shareholders involved in the merger plan.
The resolution stage also includes:
3. Implementation is the final stage of the merger process, including enrolment of the merger deed in the Company Register.
Normally medium-sized/big mergers require one year from the start-up of negotiations to the closing of the transaction. This is because, in addition to the time needed technically, there are problems relating to the share exchange ratio between the merging companies which is rarely accepted by the parties without drawn-out negotiations.
During the merger process, share prices will adjust to the share exchange ratio. On the effective date of the merger, financial intermediaries will enter the new shares with the new quantities in the dossiers. The shareholders may trade without constraint the new shares and benefit from all rights (dividends, voting rights).
Possible reasons for merger failure:
1.Differences
One of the primary reasons that mergers sometimes fall apart before they can ever be completed is due to the differences between those attempting the merger in the first place. Differences in opinion or management style may cause potential partners to fail to see eye-to-eye, causing the merger negotiations to break down. This can happen for other reasons as well. Differences in personality may cause two potential partners to part ways even though it may be mutually beneficial to combine their efforts.
2.Legal Issues
Legal issues present another major snafu the companies may run into during the merger process. Since the passage of the Sherman Anti-trust Act of 1890, companies in the United States have been forbidden to form any type of business entity that might result in the restriction of fair trade. This applies to mergers at the corporate level as well. The act indicates that any "combinations" in restraint of trade are also illegal. It has taken well over a century for U.S. policymakers to fully spell out what this means, but it is an important consideration that companies must make when moving forward in the merger process.
3.Culture
Differences in corporate culture from one organization to the next also can pose problems for businesses looking to combine efforts and resources. This is closely related to the differences seen between partners but applies to the entire organization as a whole rather than the differences between those at the top of the corporate food chain. The ability to combine two organizations with cultures that are seeming polar opposites of one another requires both planning and a certain level of artistry. Cultural differences can threaten the outcome of a merger.
4.Integration
One of the most significant problems that occurs in relation to a corporate merger is the post-merger integration that must take place. Companies that combine their efforts and resources must learn to do so by bringing all of the constituent elements of their organizations together. This is easier said than done. The amount of planning and negotiating required to bring this about is fairly significant and usually takes place during the merger process. This integration planning is closely related to cultural issues because it requires those involved in the planning process to determine what corporate culture will look like after the merger.
2.
As per IFRS 10, a parent need not present consolidated financial statements if it meets all of the following conditions:
Consolidated financial statements present the financial position and results of operations for parent and one or more subsidiaries as if the individual entities are a single company.