An Analysis Of A Mergers Profitability

An Analysis Of A Mergers Profitability Abstract Introduction In the last few years we have observed a revived surge in the number of mergers. They are more often observed in countries with better accounting standards. Companies undergo mergers for a number of reasons. The primary reason is the proper allocation of resources and thus, increasing cost efficiency. A small amount of research has been done in the past years analyzing the short and long term effects of mergers in creating value for the companies. It has been seen that most mergers result in failures but not much research has been done in analyzing the reasons behind it. My research would be based on few of the biggest mergers that have taken place in the last few years. Firstly, my analysis of a mergers profitability would be based on standard event study methodology. It would take into account the return to shareholders. Secondly, it would also aim to provide evidence regarding the signalling theory and the synergistic and the agency views. This would be based on an in-depth analys is of various determinants such as the excess returns around the announcement of the merger bid and around the termination of the merger and the significant differences in the responses of firms attempting focusing versus diversifying mergers respectively. Lastly, this would be followed by a thorough analysis of the valuation effects of mergers. There have been varied views but no one conclusion has been reached. I would thus, like to investigate deeper into it 2. Literature Review and Hypotheses Analysis revealed My research concentrates on the effects of a focusing and diversifying merger on the abnormal returns around the announcement period of the merger. The study by Delong (1999) can be seen as an extension to my research. He based his research on evaluating the stock pricing behaviour of the bidder and the target in bank mergers. He further studied the abnormal returns according to the nature of the merger i.e. focusing or diversifying. In my analysis, I take into account only activity focused mergers, whereas Delong (1999) considers mergers which focus on both activity and geography. His results show an enhancement in value of a focusing firm of about 2 % to 3 % as compared to a diversifying firm irrespective of the time period. On investigating further, he found that the relative market size of the target to the bidder and the pre-merger performance of the targets show an apparent relationship with the cumulative abnormal returns so calculated. Wong and Cheung (2009) analyse the changes in the stock prices of the bidding and target firms in Hong Kong, China, Taiwan, Singapore, South Korea and Japan, following a merger or an acquisition announcement. It can be seen from their analysis that such an announcement yields positive results for the bidding firms but does not prove to be very beneficial for the target firms. Their hypotheses considered the consequences of the mode of payment, the type of acquisition and the type of the target firm on the stock pricing. Out of them only the second variable seems to have a direct effect on the post announcement returns of the bidding firm. Huang and Walkling (1987) conducted similar research by extracting a sample of acquisitions from the Wall Street Journal which consisted of all initial front-page acquisition announcements. But this, took into account slightly different variables as compared to the other analyses discussed above. They determined the effect of tender offers vs. mergers; cash offers vs stock offers and resisted offers vs. unresisted offers. Their analysis revealed higher abnormal returns for tender offers which were quite insignificant once the effect of the extent of resistance and the payment type were isolated from it. The deals which faced resistance during a merger or tender offer showed higher abnormal returns irrespective to the mode of payment. All the results obtained above were either insignificant or marginally significant, but the effects of the third variable i.e. the form of payment showed some concrete results. The cumulative abnormal returns obtained from cash offers were radically high er than those obtained from stock offer. This research carried out by Huang and Walkling gave quite a holistic overview of the effect of the announcement of an acquisition, as it took into consideration, variables which are affected by both the bidding and target firms decisions. All the literature discussed earlier in this paper, has illustrated some positive effects of an acquisition for both the bidders and the target firms. But, the analysis conducted by Bruner (2001) showed a little variation to the above. It suggested that only the target shareholders draw upon the benefits of the acquisition. No such profitable return is observed for the bidding firms. But, the combined returns of the bidder and the target yield positive results. The approach followed by Bruner differs significantly from most of the research discussed earlier. He measures the performance of a merger and acquisition based on the investors required returns. After observing the abnormal returns of the acquirer around the announcement date of the merger as per my research, the most obvious next step would be to analyse the long term effects of the merger. Various studies have been done in order to rightfully determine the outcome .The study by Asquith (1983) showed drastic negative returns after about three years of the merger. One of the best analyses that I found was by Agrawal, Jaffe and Mandelkar (1992) in their paper ‘The Post-Merger Performance of Acquiring Firms: A Re-examination of an Anomaly. Their results are based on a thorough analysis of a number of mergers that took place from 1955 to 1987. They explored the effect of the size of the firm and its beta risk, and found a loss of 10 % in the total wealth of the acquiring firm, five years after the merger was completed. An attempt was also made to find the additional NPV which is not captured by the announcement returns analysis. But, it was seen that the modification of t he market was similar for both the announcement and post merger analyses. Cole et al (2006) Investigate a number of unsuccessful mergers in order to determine if they create or destroy value for acquirers by using mainly two approaches. Their signalling approaches show that the value of the bidding firm is reduced by a large margin in the market, which is a form of a punishment for considering the acquisition of a low NPV project. They also find that horizontal mergers yield negative CAR. Hypothesis 1: The average abnormal returns (AAR) yield positive results for all sub-periods in the event Hypothesis 2: The Cumulative average abnormal returns (CAAR) yield positive results for all sub-periods in the event. Hypothesis 3: The type of acquisition, kind of acquisition, the mode of payment and the type of target firms affects the value of the cumulative abnormal returns (CAR) around the announcement day t=0 in the event. Take into account focusing and diversifying 3. Methodology We begin by classifying the effective sample into two categories – Focusing and Diversifying. The classification approach has been adopted by Mann and Sicherman (1991).This can be done by comparing the two-digit SIC Codes of the acquirer and the target firm respectively. If both the firms involved in a deal have the same two-digit SIC Code, it can be classified as a focusing acquisition, whereas, if both firms have different codes, it is classified as a diversifying acquisition. Now we progress towards analysing the cumulative value created by a focusing and diversifying acquisition around the announcement date, using a standard event-study methodology described by MacKinlay (1997), Huang and Walkling (1987) and Wong and Cheung (2009). The Market Return Model is used in this case, to calculate the abnormal returns of the sample using a linear relationship between stock returns and market return. Rit = ÃŽ ±i + ÃŽ ²iRmt + ÃŽ µit (1) E (ÃŽ µit = 0) var (ÃŽ µit) = ÏÆ'ÃŽ µt2 Where: Rit : Return on security i on day t Rmt : Return on market portfolio on day t ÃŽ µit : Zero mean disturbance term ÃŽ ±i, : expected value of the difference between Ri and ÃŽ ²iRmt ÃŽ ²i : covariance between Rit and Rmt divided by the variance of Rmt ÏÆ'ÃŽ µt2 : variance of the error term We use the market model instead of the constant mean return model as it gives us a more accurate judgement of the effect of the event. This is true as it does not take into account the variation of the market return , thus, giving us more accurate abnormal returns. ( if any words remain add how to calculate rit and rmt) In order to calculate the abnormal returns, we use the market model parameter estimates. ^ ^ ARit = Rit – (ÃŽ ±i + ÃŽ ²iRmt) (2) Where: ARit : the abnormal return for security i on day t ^ ^ ÃŽ ±i and ÃŽ ²i : estimates of ÃŽ ±i and ÃŽ ²i In order to calculate the abnormal returns we use a maximum of 351 daily observations (Huang and Walkling, 1987). We start collecting data from t -300 to t +50 days, with t = 0 being the announcement date of the acquisition. These 351 days include non-trading days as well. In other words, we actually gather data from t -214 to t +36, taking only trading days into account. We use different time periods of an event for a complete comparative analysis of abnormal returns in each sub period which is described as below: Event period : day t -10 → day t +30 (41 days) Pre-announcement period : day t -10 → day t -2 ( 9 days) Announcement period : day t -1 → day t 0 ( 2 days) Post Announcement Period : day t +1 → day t +30 (30 days) diagram To analyse the effect of the event , we now calculate the average abnormal return (AAR) for all the securities for a time period t. AAR is the sum of all abnormal returns of firms on day t divided by N( the number of firms): (3) The t statistic, à Ã¢â‚¬ ¢, is calculated by dividing AARt by the standard deviation of the average abnormal returns. This is final step of the model, which helps in determining the significance of the AARt in the event period. (4) While calculating the standard error, an estimator is used to calculate the variance of the abnormal returns in the absence of but in this case we use the sample variance measure of that we derive from the market model regression. The estimator is as follows: In order to establish a more holistic viewpoint, the cumulative average abnormal returns (CAAR) are calculated: Where T1 to T2 is the duration of the event in which the AARt is collected. According to our hypotheses we have to calculate one more variable, the cumulative average abnormal return (CAAR) over a certain period. In order to find out the significance of CAAR we calculate its t statistic as follows: Where var(CAAR) is the variance of the cumulative average abnormal returns. We could use a variety of formulas to calculate the standard deviation and t statistic such as those described in Campbell, Lo and MacKinlay (1997) and Brown and Warner (1985). But we calculate using the method adopted by Kothari and Warner (1985): Where: : Variance of the average abnormal return for one period. L : Longer the L, the higher is the variance of CAAR To test the third hypothesis, another variable is taken into consideration the Cumulative abnormal returns (CAR). We now develop a regression model using dummy variables to test the effect of the type of acquisition, kind of acquisition, the type of the target firm and the mode of payment on the CAR of the acquirers. The control variables are the relative market size of the market value of the target to acquirer (RMV) and the market size of the acquiring firm (M) (Wong and Cheung, 2009). Where: : Cumulative abnormal return from day d1 → day d2 D1 : 1 if the type is acquisition D1 : 0 otherwise i.e. merger D2 : 1 if it is focusing D2 : 0 otherwise i.e. diversifying D3 : 1 if target firm is private D3 : 0 otherwise i.e. public D4 : 1 if mode of payment is cash D4 : 0 otherwise i.e. stock M : Market Value of the acquiring firm=Number of outstanding share *closing price on the announcement date The tests of hypotheses 1, 2 and 3 can be described as the following tests: H1 : H0 : AARt = 0 H1: AARt ≠  0 H2 : H0 : CAARt = 0 H1: CAARt ≠  0 H3 : H3i :ÃŽ ²1 = 0 (Acquisitions vs. Mergers) H3ii :ÃŽ ²2 = 0 (Focusing vs. Diversifying) H3iii :ÃŽ ²3 = 0 (Public vs. Private target firms) H3iv :ÃŽ ²4 = 0 (Cash offer vs. Share offer) 4. Data Description The number of mergers and acquisitions carried out in India has been quite extensive. Hence, certain criterion has been used to select a suitable sample. The deals carried out with Morgan Stanley, JP Morgan, Goldman Sachs, UBS, Deustche Bank and Citi as their financial advisors should be included. These banks have been chosen as they deal with high valued mergers which are perfect for highlighting the true effects of a focusing or diversifying merger. All deals should have been completed from January, 2003 to March, 2010. The sample consists of only 178 completed transactions. All the acquirer firms must be publicly listed in the Bombay Stock Exchange. The SIC Codes for the target and acquirer should be available in the CRSP Database. This helps in dividing the sample into focusing and diversifying mergers. Because of these restrictions, the sample reduces to 70 firms, three of which have some information missing regarding the stock returns etc and hence our effective sample is 67. It has been further classified into 44 focusing and 23 diversifying deals. Using only publicly listed firms enables us to extract information about these deals such as – announcement dates, termination dates, stock returns, market returns etc. from the Thomson One database, company websites and the Bombay Stock Exchange. The Bombay Stock Exchange Sensitivity Index or the BSE Sensex (30) has been used to gather the market returns of the firms.

Amsterdams Architecture Over The Ages :: European Europe History

Amsterdam's Architecture Over The Ages Amsterdam has witnessed many architectural changes during its existence as a capital. From its earliest canal houses to its recent "modernisation", it is a widespread array of fascinating design and architecture. Throughout this short guide, I wish to take you through these ages, demonstrating the designs, the reasons for them, the way of living and the way the architecture developed around the community. This guide focuses mainly on the last one hundred years, looking in depth at the gradual changes made to this great city, and its surrounding areas. I will also look at the great architectural achievements made over time in this area, looking at their design purposes and influences. Older architecture Central Amsterdam ages back to over 700 years, but most of the buildings seen today were built in Amsterdam's "Golden age", about 250-500 years ago. The "Golden age" was the period when most of what is now known as central Amsterdam was built. Some people think it is Amsterdam's best architectural achievement. Probably the most prominent building built within this time period is the canal house. These line all the canals in the centre of Amsterdam. Every canal house was built to be unique from any other, though built with the same shape, each one was personalised with an ornamental piece, such as the gables and plaques. Another method was to put very decorative carvings on the "neck" of a house. This is called "necking". The picture on the right is an excellent example of necking. Due to the swamp like quality of the reclaimed land under Amsterdam, it was very hard to build buildings. Because of this wooden stilts were used to support the houses. They were driven into the wet ground before construction for support. Now due to the wet ground some of these supports are rotting, causing houses to tilt and sink into the earth. The picture on the left is of a house on the Keizergracht, it has gradually sunk into the ground over the years causing it to lean sideways. During the time period in which these houses were built, your house taxes depended on the frontage. Meaning your taxes were determined by the width of your house. Therefore the sneaky Dutch built their houses deep and narrow to avoid severe taxing. For this same reason the staircases are very narrow and low, making it impossible to take furniture up and down them.

Well Fargo

A. Brief abstract / overview of case study Abstract The purpose of this paper is to answer the following questions: How should Wells Fargo Position it self for the future? Should it strengthen its retail presence, grow internationally, or move into the void created by the disappearance of investment banks? Develop Projected Financial Statements that fully assess and evaluate the impact of the proposed strategy. How are the acquisitions / growth financed? Will debt be increased further, or ownership of WFC stock be diluted to raise the capital needed?The author will attempt to answer these questions using chart sand graphs as illustrations and supporting evidence Overview case The paper submitted will contain a proposed plan of action using primarily data from Morning start oshowa proposed acquisition for Wells Fargo. This acquisition will greatly increase the Wealth, Brokerage, & Retirement segment of Wells Fargo that has been underutilized and overlooked. This proposal will â€Å"m arry† the benefits of TDA meritrade with the Cross-selling strength of Wells Fargo.The primary purpose that TDA meritrade was selected was convenience. Although Charles Schwa band E *TRADE are competitors of TDA meritrade, but they were not selected for varying reasons. Charles Schwabhasa history of refusing overtures for take overs after his disappointing episode of being bought up by a large corporation many years ago. E*TRADE, whom some experts consider having a high erupt side than TDA meritrade, is not nearly as stable or financially sound.Given the current economic uncertainty and the authors’ penchant for avoiding risk, TDA meritrade is the best option available of the large independent retail brokerages. According to Zacks Equity Research, an interesting side note is â€Å"that Wells Capital Management, the wholly owned institutional asset management subsidiary of Wells Fargo Bank, N. A. , and part of Wells Fargo’s Asset Management Group† (Zacks Eq uity Research, 2011) already owns about 2. 58% of TDA meritrade. (Morningstar. com, 2012) How should Wells Fargo Position it self for the future?Wells Fargo can position it self for the future by capitalizing on its one-stop shopping format for all financial products. Already with one of the highest cross-selling ratios in the world at 5. 81 products per banking household†¦Ã¢â‚¬  this number can and should go higher in the not too distant future. (APAeditorial, 2009) B. Vision Statement To satisfy all of the customers’ financial needs, help them succeed financially, be known as one of America’s great companies and the number-one financial services provider in each market C.Mission Statement We want to satisfy all of our customers' financial needs, help them succeed financially, be the premier provider of financial services in every one of our markets, and be known as one of America's great companies. Wells Fargo is committed to strengthening the company and the c ommunities by proactively seeking minority, women, and disabled – owned suppliers, Wells Fargo strongly believe that Wells Fargo’s suppliers must reflect the diversity of team members, customers, and communities.Proactively seek to procure goods and services from minority, women, and disabled-owned businesses. Our Supplier Diversity team assists these businesses to access bid and contract opportunities through a combination of which is actively seek to establish relationships with diverse suppliers through business networking, electronic and print communications, and participation in supplier event nationwide. We encourage and assist suppliers to gain certification of their minority, women, or disabled- owned business status from independent local and national agencies.The Supplier Diversity team advises and guides diverse suppliers to prepare and position their businesses for maximum access to bid and contract opportunities. We actively communicate with minority, wome n, and disabled-owned suppliers, referring relevant Requests for Proposal and other potential business leads. Internally, the Supplier Diversity team works to ensure that diverse suppliers are represented and considered by Wells Fargo purchasing managers in all sourcing, contracting and procurement decisions. Wells Fargo SWOT * STRENGTH 1.Strong national presence and credible reputation (Strong brand) 2. Widely recognized as industry and market share leader (Industry leader) 3. Servicing for more than 25 million customers through over 6000 stores, the Internet, and other distribution channel across North America and elsewhere internationally (Worldwide service) 4. Values its people as its competitive advantage (Strong HR & management team) 5. Values and treats its customer as friends (Loyal customers) 6. Leading innovator in the use of internet and e-commerce (Online growth) 7.Strong balance sheet and the ability to steer through the pitfalls that plagued its competitors (Strong fin ancial position) * WEAKNESS 1. The Wachovia Bank subprime mortgage problems (Over leveraged financial position) 2. Overcommitted in credit swap (Over leveraged financial position) 3. The reduction of Wells Fargo’s debt rating two levels during January 2009 (Weak capital position) 4. Cut its dividend payment in a move to attempt to solidify its balance sheet (Diseconomies of scale) 5.Wells Fargo basically did no securities business after merger (Not diversified) 6. Too much focus on consumer/retail banking (Not diversified) 7. Weak International growth OPPORTUNITIES 1. Increasing its extensiveness through mergers and acquisitions with recently owned Wachovia or with other new bank (M&A opportunities) 2. Growth and success of combined Wachovia and Wells Fargo will be one of the great financial services company (National growth) 3. Move the large national bank with an international presence forward or expansion abroad (International growth) 4.The disappearance of investment bank ing and the Wells Fargo’s announcement to significantly expand its security business (Product & service diversification) 5. The use of internet banking and e-commerce (Online growth) Threats 1. Rising interest rates in US. 2. Basel II and compliance costs. 3. Consolidation in banking industry. 4. Competitive Matrix Profile. 5. Consolidation in the US banking industry. 6. Regulation on contingent commission. 7. Rising incident of online scam. 8. Meltdown in US Asset backed Securities market.

STORMS MAKE TREES TAKE DEEPER ROOTS - 1552 Words

Storms make trees take deeper roots If you are bemoaning and complaining about some hardships you have to endure, don t. Behind the success of every person could have been a series of hardships endured and obstacles conquered. Hardships may refer to adversities, misfortunes, troubles, hard times, problems, or something that cause suffering. They accompany us from birth to death, along with our joys and memorable peak moments. Hardships can come in many forms. Depending on how you look at hardships they can be your road to character development. They can yank you out from your comfort zone, sometimes with no solid ground to stand on, and can lead you to make some much-needed changes in your life. They could make you suffer and in the†¦show more content†¦And every situation in our lives has a lesson to teach us. You’re not alone. Everyone has problems. – To lose sleep worrying about a friend. To have trouble picking yourself up after someone lets you down. To be afraid to try something new for fear you’ll fail. None of this means you’re dysfunctional or crazy. It just means you’re human, and that you need a little time to right yourself. You are not alone. No matter how embarrassed or pathetic you feel about your own situation, there are others out there experiencing the same emotions. Although the world is full of suffering, it is also full of brave people who are overcoming it. Sometimes you have to forget what’s gone, appreciate what still remains, and look forward to what’s coming next. Even when times are tough, it’s always important to keep things in perspective. Some might say you are incredibly wealthy, so remember to be grateful for all the things you do have. Success is often closer than it seems, and arrives suddenly, when you least expect it. Not getting what you want is sometimes a wonderful stroke of good luck, because it forces you reevaluate things, opening new doors to opportunities and information you wou ld have otherwise overlooked. We’ve all made mistakes. But if you think about it, we’ve learned a lot from our bad choices, and even though there are some things we can neverShow MoreRelatedGame Theory and Economic Analyst83847 Words   |  336 Pagesand selection  © 2002 Christian Schmidt; individual chapters  © the contributors †¢ the minimax problem in game theory and the saddle point problem as an equilibrium in economic theory (Von Neumann 1937) 1940: Von Neumann chooses the economist O. Morgenstern to assist him in the composition of what would become the ï ¬ rst treatise of game theory. The title of their work is explicit: the theoretical understanding of games is presented as relevant to the analysis of economic behavior. HoweverRead MoreStephen P. Robbins Timothy A. Judge (2011) Organizational Behaviour 15th Edition New Jersey: Prentice Hall393164 Words   |  1573 Pageswith My Job? 70 CONTENTS ix S A L An Ethical Choice Do Employers Owe Workers More Satisfying Jobs? 74 glOBalization! Culture and Work–Life Balance 76 Self-Assessment Library Am I Engaged? 78 Myth or Science? â€Å"Favorable Job Attitudes Make Organizations More Profitable† 83 Point/Counterpoint Employer–Employee Loyalty Is an Outdated Concept 87 Questions for Review 88 Experiential Exercise What Factors Are Most Important to Your Job Satisfaction? 89 Ethical Dilemma Bounty Hunters 89 CaseRead MoreProject Mgmt296381 Words   |  1186 Pages652 602 Career Paths 603 Temporary Assignments 604 Pursuing a Career 605 Professional Training and Certification 605 Gaining Visibility 606 Mentors 607 Success in Key Projects 608 Summary 608 Project Management Equations C H A P T E R O N E Modern Project Management Estimate 5 Project networks 6 Schedule resources costs 8 l ona nati nter jects I pro 15 Define project 4 Reducing duration 9 Introduction 1 Organization 3 Managing risk 7 Monitoring progress 13 Read MoreDamodaran Book on Investment Valuation, 2nd Edition398423 Words   |  1594 Pagesmodels of valuation described in this book attempt to relate value to the level and expected growth in these cashflows. There are many areas in valuation where there is room for disagreement, including how to estimate true value and how long it will take for prices to adjust to true value. But there is one point on which there can be no disagreement. Asset prices cannot be justified by merely using the argument that there will be other investors around willing to pay a higher price in the future. Generalities