Advantages of Mergers and Acquisition

Ø Synergy

            The basic concept of synergy is that the unified whole is greater than the sum of its individual parts. It can be expressed as 2+2 is greater than 4, in case of synergy. Say, there is ABC Bank Ltd with an annual operating profit of Nrs. 10 Million and MNO Bank Ltd. with an annual operating profit of Nrs. 8 Million. Then if the two banks work together, according to the concept of synergy, their annual operating profit will exceed Rs. 18 Million. This is a result of synergetic effect by the cooperation between the companies.

Ø Staff Reductions

            As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package.

Ø Economies of Scale

            This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins. A bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers.

Ø Acquiring New Technology

            To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a company with unique technologies, acquiring company can maintain or develop a competitive edge.

Ø Improved market reach

            This states that the buyer will be absorbing a major competitor and thus increase its market reach and enhance market power. Companies buy companies to reach new markets and grow revenues and earnings. A merger may expand two companies' marketing and distribution, giving them new sales opportunities.

Ø Reducing Competition

          M&A between the companies, except the conglomerates, reduces the competition among the business companies. This can be used to eliminate the waste, for e.g. marketing expenses; commissions etc., and increase the economies of scale of the company.

Ø Taxation

              A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. Tax minimization strategies include purchasing assets of a non-performing company and reducing current tax liability under the Tanner-White PLLC Troubled Asset Recovery Plan. Simlarly, the profit of one company can be cary forwarded to meet the loss of another company in order to escape the tax- liability. In this age of globlisation, many companies across the world go with M&A with the companies in tax haven countries in order to reduce tax liability.

to be ctd.......

Net Blog: Types of Mergers and Acquisitions

Mergers and Acquisitions

(In Nepalese Perspective)

Merger:

A merger is a combination of two companies to form a new company. In a merger, the two companies are brought together to create an existence of a new company while abandoning the legal existence of the old two companies. It means the two companies are mixed up as a single unit to create a new business company. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place.

For eg. :      Himchuli Bikash Bank and Birgunj Finance

Acquisition:

          An acquisition is the purchase of one business or company by another company or other business entity. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquiree or merging company (also termed a target) is or is not listed on public stock markets.

For eg. :      Standard Chartered Bank and Grindlays Bank

NOTE: ‘Consolidation’ actually occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently..

Whatever may be there in the defination, in practice, however, actual mergers of equals don’t happen very often. Usually, one company will buy another and, as being bought out often carries negative connotations, the term is named merger even if it is the acquisition. So, in order to overcome this shortcoming the terms Merger and Acquisiton (M&A) is taken together.

to be continued.......

 Next Blog: Advantages of Mergers and acquisitions

Economy of Nepal

Present economic situation of the country and things to do better it: (In a nutshell)

40 Billion GDP  and a growth of 4 % is the present condition of our economy. Decades of armed conflict and unstable government has jeopardized the economy of Nepal. Economy of Nepal is highly dependent on foreign donation, remittance from the abroad working Nepalese.

Import is much higher than the export and the trade deficit is more than $750 million. More than 80% of the people are engaged in non-commercial agriculture and animal husbandry. The unemployment rate is 45%. Annually, more than 700,000 youths go abroad seeking the jobs. The greatest export of Nepal has been human resources in the middle-east. Load-shedding touches up to 16 hrs. per day. (It is predicted that the loadshedding goes up to 20 hrs. a day this year)

Nepal has a great tourism potential. It has a wide range of Himalayas, beautiful sceneries, good culture, historical monuments, flora and faunas, religious places, adventure spots and many more. Amongst these, mountaineering and adventure tourism has the highest potential in Nepal. Lonely planet has classified Nepal as world's 6^th most cheapest  destination.

Another possibility of Nepal is on Hydro-power. Hydropower has a low per unit cost as compared to other alternatives. Study says Nepal has the attainable capacity of 42,000 MW while the economy requires 2,000 MW for internal consumption. Nepal can generate huge revenue by selling the electricity production to neighbor nations.

Despite these key potentials, transitional politics is deteriorating the economy day by day. Nepal is not being able to formulate proper policies and plans. The five year plan is not being able to incorporate all the requirements.

The economy is in a worse condition. So, the following things are suggested to make it better:

ñ  Government should create an investment climate to attract big MNC's to operate in Nepal. For this, investment protection agreement can be done.

ñ  The political parties, trade unions should start protesting in a creative way. The old shut-the-office, block-the-roads should be changed.

ñ  Venture Capital laws should be brought by the gvt. And it should encourage youths not to go abroad.

ñ  Entrepreneurship should be promoted at the national level. Without local job creation 46% of unemployment can not be solved easily.

ñ  BFI's should invest as a micro finance in order to make the services reach to the poor farmers changing their way to commercial farming.

ñ  Business houses should start providing unique products and services. They should not invest in the competitive line with Chinese and Indian products.

ñ  Governments key focus should be on developing roadways/railways, investment in quality education should be increased.

  

ñ  The key area of investment should be on tourism and hydro-power. Promotion of tourism should be done internationally. Strategies should be made in order to attract mass of the tourist visiting China and India to  come Nepal.