Motives and Funding Sources for Mergers in Royal Dutch Shell

BUSM4308 Financial Decision
Making for Managers 2019-20

Table of Contents
Motives or purpose for mergers...................................................................................................3
Funding sources used by firm in merger and its effect on capital structure................................3
Details regarding movement of share pre and post merger and the factors that might have
caused company's share price to move........................................................................................3
Comparing share price of company within its sector and to FTSE in graphical and discussion
manner.........................................................................................................................................4
Commenting on newly formed corporations financial performance...........................................5
Identifying winners and the losers in merger and explaining the ways to reach conclusions.....6
Commenting on factors that results to success of merger...........................................................6
REFERENCES................................................................................................................................1

Motives or purpose for mergers
The Royal Dutch and the shell group was been formed in the year 1907 and the merger
took place in November 2004 at the time when merging of an interest of Royal Dutch and the
Shell transport has taken place within which each of the company retained its own identity. The
motive behind the merger for both the company is to achieve leading position as an oil and gas
company (Kumar, 2019). Through merger, the company has attained a third largest position
across the world as the oil and gas enterprise within an industry. The company has expanded its
business into several other countries containing appropriate leadership skills.
Funding sources used by firm in merger and its effect on capital structure
Exchanging stocks- Royal Dutch has decided to exchange stocks for the sellers
company. It is found as the most common and the suitable financing alternative as parties share
risk on an equal basis. This method worked towards buyers advantage in case stock is been
overvalued. Under this , the buyer would be receiving more and more stock from seller than they
would be paid in the cash. However, under this there contains a risk of decline in the stock,
specifically if the traders learns about merger before deal is been finalized.
Debt financing- Royal Dutch has also take on the sellers debt as the viable alternative in
order to pay in cash or the stock. For several firms, debt is considered as the driving force behind
the sale as high amount of interest cost made it impossible in catching up onto payments.
Details regarding movement of share pre and post merger and the factors that might have caused
company's share price to move