Question

Write 2 page paper in which you respond to the question below and provide true/ false replies for all questions (with supporting rationale) and additional requested information for 1a, with references.

1a. True/ False - On average, acquisitions destroy shareholder value Identify a corporate acquistion (within the last 10 years) which added value to the acquiring company and discuss a minimum of three (3) key factors which enabled their success?

Answer 1

True, In general, acquisitions do not create value, Empirically, in over 70 percent of the transactions acquirers earn a negative return. This is mainly because acquisitions are often driven by illusory synergies, acquirers have to pay a substantial premium over pre-acquisition value and post acquisition integration is not successfully anticipated and managed. Some companies manage to create significant positive value on a sustained basis. These companies have strong acquisition capability and deep acquisition experience.

The merger of Reliance Petroleum Limited (RPL) with Reliance Industries Limited (RIL) in 2002 represents the largest ever merger in India creating the country's largest private sector company on all financial parameters, including sales, assets, net worth, cash profits, and net profits.

Defending the merger, the management claimed that the merger will contribute to the following substantial benefits for RIL, thereby enhancing shareholders value.

1.Economies of Scale

2. Integration

3. Global competitiveness

4. Operational Synergies

5. Logistics advantages

6. Cost efficiencies

7. Productivity gains

8. Rationalisation of business

9. Processes

10. Optimisation of fiscal incentives