The Merger of Granda and Compass Research Proposal

The Merger of Granda and Compass - Research Proposal Example The success/failure of the merger will be analysed according to the Economies of scale: "This refers to the fact that the combined company can often reduce duplicate departments or operations, lowering the costs of the company relative to theoretically the same revenue stream, thus increasing profit."2 Many authors have dealt with the issue of clarity and understandability of the topic of mergers. Most of the research studies are aimed at studying the factors, which motivate the management of the companies to undertake the decision of merger and the benefits or the losses The study of mergers and acquisitions focuses on understanding what motivates managers to engage in this type of activity and the impact that mergers and acquisitions have on shareholder returns. Mostly the main aim of the companies for mergers could be empire building through growth in size, sales, and assets. 3 Mostly the motivation for the merger involve the increase in the market gains, the competitive advantage in shape of technological advancement, and the increase in the strength of the companies. In some cases the HR practices also improves as the result of these mergers. Efficiency improvements can be gained from synergy of target and bidding firms due to economies of scale and use of excess capacity. Recent studies stated that value creation couldn't be achieved in case of horizontal merger. 4 5 6 The entity formed by the merger of Granada and Compass, "Granada Compass", was 66.25% owned by Granada shareholders and 33.75% by those of Compass. The merger proposal said that prior to the IPO, Granada Media was expected to be capitalised with no net debt. At the end of March 2000, Granada's net debt was 1.9bn and Compass's was 1.1bn. In a joint statement Granada and Compass said that they expect their combined businesses to be "better placed to exploit the significant growth opportunities in each of its core markets and to benefit from the combination of its complementary businesses." 7 On the other hand the horizontal merger of Bell south and AT&T is expected to provide both the companies with the following advantages. Cross selling: Through the merger the companies become enable to sell their products to the customers of the other company. The natural combination of two will improve the services provided to the customers. Financial Benefits: The merger of both the companies will lead to a "financial benefits for stockholders of both companies; an expected net present value of $18 billion in synergies resulting from a more than $2 billion annual run rate in synergies expected in 2008, growing to $3 billion in 2010." 8 On the other hand the expected merger will lead to "accrete AT&T adjusted earnings per share in 2008, double-digit adjusted EPS growth in each of next three years (earnings adjusted for merger integration costs and amortisation of intangibles) and significant growth in free cash flow after dividends in 2007 and 2008". 9 Geographical or other diversification: Another advantage