Financial Management Essay Example | Topics and Well Written Essays - 1750 words

Financial Management - Essay Example The general principles are not followed to the letter rather they are applied in spirit. The following is a brief summary of some of the most important Rules: Favorable deals are banned and will not be provided to selected shareholders. Same information must be given to all shareholders. The issuer is responsible for the contents of takeover circulars by attaching a statement taking responsibility for the contents. All forecasts relating to profit and valuations of assets must be reported on by professional level advisers and be made as per specified standards. If any unproven or incorrect statements have been made then they need to be immediately rectified by way of public announcement. If an offer has been made then it must be brought to the attention of both the staff of offeror and the offeree. All those actions which might frustrate the offer during the offer making process by the target company are generally prohibited unless shareholders approve these plans. The disclosures of dealings in relevant securities during an offer have established stringent requirements. B. Identify and examine the economic reasons for acquisitions and mergers and discuss why the expected economic benefits may not be reached. The economic reason for acquisitions and mergers is based on the idea that there are two separate companies alone they have limited potential and can offer limited profit on share holder investment hence the primary motivating force for acquiring a company is to generate greater shareholder value for the shareholders. The proponents of acquisitions and mergers are of the view that one separate company on its own has less value but when two companies are merged together they become more valuable. It can also create greater cost efficiency via economies of scale, can augment the company’s profits through gaining a greater market share and tax gains can also be generated. This logic is very appealing to companies during trying times say an economic rec ession. Those companies with a strong financial base will move to acquire rival companies to ensure a more competitive, cost-efficient company. By acquiring or merging with other companies they will hope to attain a larger market share or to attain greater efficiency say by acquiring a particular technology or production process (Sloman & Sutcliffe 2004, pp. 325-330). Due to these potential benefits, companies targeted for acquisition will often agree to be acquired when they know their going concern status is in jeopardy. The expected benefits of acquisitions and mergers may not bear fruit because if we were to look at historical trends they confirm that roughly 66.6% of big merger’s value will decline on the stock market due to its bullish trend or that both the companies who have merged have different corporate cultures. One of the reasons that an acquisition or merger fails is because of the flawed intentions of the parties involved. They might be instituting merger or ac quisition because one of their competitors has undergone a merger, which pushes top executives of other companies to imitate this move and when this happens chances are the merger may often have more to do with seeking glory instead of pursuing business strategy (Maps of