Question

Jim is the owner and managing director of Colours Ltd, a company selling eco-friendly paints in Ireland. The company has ten stores around the country and is the dominant player in its marketplace.

Bulldog Paints is an AIM listed UK company. It sells eco-friendly and premium paints,

owning 120 stores and operating mainly in the competitive UK market. It has recentlyundertaken a policy of international expansion.

Bulldog Paints has recently suggested merging the two companies. Under the terms of the merger, Jim will receive 10% of the shares of the merged company and will act as manager for the Irish operations.

Jim is unsure whether to accept the offer. You are required to prepare a report outlining the costs and benefits of the merger. The report should distinguish between the costs and benefits that accrue to Jim personally as owner and manager of the company and those that affect the future operation of Colours Ltd.

Answer 1

Answer:

The transactional cost of a merger can and do cause a dilutive situation short and possibly long term. Experienced merger and acquisation professionals know that transaction costs, in the business community can range between 6 and 8 per cent of the gross revenues of the organisations.

There actually are simple .. Mergers are expensive even if there is no cash paid, you need to hire expensive advisors, they take a long time and mergers between similalrly sized companies require lot of work form senior management (which mean they aren't running their company)

A corporate merge is a combination of assets and liablitites of two firms which form a single business entity

Synergy = NPV (Net Preset Value) + P ( Premium)

1. Revenue Increases
2. Expense reduction
3. process optimization
4. financial economy

Major advantages of merger are as follows:

• Economies of scale
• Tax benefits
• financial resources
• entry in global market
• growth and expansion
• helps to face competition
• increase in market share
• increase goodwill

As per the above benefits Jim can accept the offer.