Question

Answer the following:

A.) Explain how a decline in the foreign exchange value of a currency affects the decision to merge with another firm.

B.)How does diversification (not the tax inversion) affect the decision to merge with a foreign firm? Explain

C.) How do intercultural differences (e.g. laws, language, employee employer relationships, etc.) affect the decision to merge with a foreign firm? Explain

Answer 1

Answer a ) The decline value in foreign exchange value of currency impact the decision to merger , as the change in exchange rate will change the value of firm without any change in financial condition of firm. Which will create a false valuation and also impact the synergy valuation after merger.

Answer b) Diversification can be one of the most important factor in merger decision , as many foreign firm enter into merger to reduce the risk of domestic market. By merger the firm may use the concept of diversification of business, which reduces the business risk of existing business.

Answer c) Intercultural differences may create conflict among employees , management and stockholders, such conflicts may reduce the benefits of synergy after merger. So firms should be very careful about such difference.

Difference in law structure may create extra liability in terms of tax , employee benefits etc.