Analysis of Merger and Acquisition in Financial Crisis

The assignment provides a comprehensive understanding of merger and acquisition, specifically in the context of a financial crisis. It involves analyzing a case study of Earling Construction Plc and Manco Construction Plc, considering takeover bid, target and predator firms, reasons for considering takeover by Earling, and ways that could have been adopted by Manco for defending the same. The analysis helps identify exposure of the corporation to financial risk and techniques to deal with risks.

Running head: CORPORATE FINANCE
Corporate Finance
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Authors’ Note

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Table of Contents
Introduction................................................................................................................................4
Solution to Question 1:...............................................................................................................4
Solution to Question 2:...............................................................................................................5
Solution to Question 3:...............................................................................................................5
Solution to Question 4:...............................................................................................................8
Solution to Question 5:...............................................................................................................9
Solution to Question 6:...............................................................................................................9
Solution to Question 7:.............................................................................................................11
Solution to Question 8:.............................................................................................................12
Conclusion................................................................................................................................13
References................................................................................................................................14

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Introduction
The current study critically evaluates important strategic financial issues that need to be
considered in a specific acquisition or merger and analyses exposure of a company to diverse
financial risks together with techniques required to handle the same. The present study
highlights the given case on Earling Construction Plc that acquired Manco Construction Plc
that crumpled due to the crash in the economy. Moving further, the study explains the
procedures that can be undertaken by Manco Plc to defend takeover, identification of
predator and target as per the given case. Furthermore, this studies critically analyses the way
Manco might perhaps view a probable management buy-out (MBO) compared to takeover
and evaluates the benefits and limitations of MBO. Moving further, the study elucidates in
detail about different methods of acquisition with real life examples, reasons for undertaking
acquisition and ways of making payments for the target corporation in a specific take-over.
Solution to Question 1:
Steps that Manco Plc need to take in order to defend takeover bid by Earling Plc
The steps that Manco Plc have the need to undertake in order to defend takeover bid by
Earling Plc include implementation of shareholders rights scheme, execution of voting rights
plan, green mail, white knight and enhancing debt.
Shareholder’s rights plans can help in defending takeover by activating a prospective
acquirer that declared its intentions at that moment. Under this kind of plans, shareholders of
Manco Plc can buy supplementary firm stock at a luring discounted price, thereby making the
same more difficult for specifically the corporate raider to acquire control (Devi, 2016).
Management of Manco Plc can consider voting rights plans. In this case the targeted
corporation Manco Plc might also execute a voting rights scheme that can separate specific
shareholders from their voting powers at a pre-ascertained point.
The corporation might think about pursuing the greenmail option by purchasing back its
currently acquired stock from a supposed raider at a superior price in a bid to avert a takeover
(Brueller et al., 2016).

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Solution to Question 2:
Identification of the “predator” and “target” as per the above mentioned case
Predator is necessarily regarded as the financially strong corporation in the merger or else
acquisition. The weaker targets of acquisition are now and then called “prey” as they can be
seized by powerful corporations. Several corporations fall somewhere in the centre of these
extremes. Essentially, the target corporation is the one that is the subject matter of
a merger or else acquisition effort. Particularly, a takeover effort can be of different types,
depending on the outlook of target firm toward specifically the acquirer firm (Boschma &
Hartog, 2014).
As per the given case study, the predator is the Earling Construction and the target is the
Manco Plc. The company Earling Construction suffered immensely owing to the break down
in the economy that was necessarily an outcome of the crumple of the entire construction
industry. However, it averted the dire consequences since it prepared itself for the possibility
although its rivals suffered hugely due to the crash in the economy and were on the verge of
collapse (Kansal & Chandani, 2014). Again, Earling Construction observed that Manco had a
distinct value gap and identified Manco as a probable acquisition opportunity. During the
year 2007, share price of Earling was €10.50 per share, while share price Manco was €4.75
per share. Therefore, in the end it can be hereby justified that Earling Construction is the
predator and Manco Plc is the target.
Solution to Question 3:
Suggestions regarding the way Manco might possibly view a potential Management
Buyout
Management buyout (MBO) engages the management team of a corporation amalgamating
resources to obtain all or else attain the company partially. For the most part of the time, the
management team of the company acquires entire control as well as ownership, utilizing their
proficiency to develop the corporation and move it forward (Popli & Sinha, 2014).
Essentially, for a corporation like a Manco Plc undergoing an alteration in ownership, the
route of management buyout delivers benefits to all concerned. Most evidently, this permits
for flat transition of company ownership (Davies et al., 2015). As the new owners become

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conscious of the corporation, there is a reduced failure risk and trading associates become
less probable to be concerned and subsisting clients and trading clients are relieved that
normalcy will be restored.
Manco can take into consideration a potential management buyout by undertaking the
following steps:
 Both the buyer and the seller can agree on a specific sale price, probably counting an
independent valuation
 Company’s entire management team that is the management of Manco Plc might
consider evaluating the overall amount that they are capable of investing
 Thorough financial evaluation have the need to be undertaken and this includes
developing forecast financial replica/model in order to reflect the serviceability of
specifically debt as well as return to potential financiers (Xu, 2017).
 Approach to various financiers, a small amount of buyout might possibly include only
one financier .whilst in case of larger deals, numerous financiers might handle the
process of financing.
Essentially, the procedure of MBO can possibly take roughly 6 months that is basically the
same time required for trade sale. Therefore, vendors along with the entire management team
have the need to be prepared for entirely committing to diverse dealings for that specific
frame of time (Titman et al., 2017). However, this can be considered to be very challenging
as the company have the need to be operated as normal and monitored whilst the transaction
is in progress.

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Analysis of the advantages and disadvantages of MBO
The advantages of MBO refer to the fact that selling a specific business can be considered to
be a drawn out procedure as this entails coming across a buyer by means of due diligence as
well as onto the transitional time period. However, selling it to the subsisting employees can
be regarded to be a quicker process as they are already engaged and are already aware of their
ins as well as outs (Reddy et al., 2014). In addition to this, the seller of the company also
finds the peace of mind that their own business is getting passed on to the hands a particular
group whom they know.
Particularly, for the purchasers, it is normally the easiest, fastest as well as least risky manner
to get into an ownership role. Essentially, this permits different individuals in fulfilling their
aspiration of specifically increasing share of their profits (Rao & Reddy, 2015). The
alternative to start a business from the level of scratch can be considered to be very difficult
and the same can take longer to understand positive returns.
Again, in certain cases, a potential management buy-out can take the corporation from
publicly traded to private. Essentially, this can aid the entire corporation to free itself from
variety of legislation, necessities of paperwork.
Disadvantages of MBO
-MBOs are hardly straightforward. For example, it is uncommon to get a group of managers
who possess adequate financial authority and ability to purchase the business. Supplementary
funds obtained from a specific bank or private equity is majority of the time necessary.
However, this alters the overall dynamics, establishing extra debt or else distributing equity
to make it thinner. Repayment along with dividends can consume profits and at the same time
squeeze the entire margins (Rao‐Nicholson & Salaber, 2016). There are many outside
financiers who require certain amount of control over the entire business.
Furthermore, investors often intend to make certain that the team of MBO is entirely
committed to the particular cause by demanding that each and every individual delves deep
into the capacity to contribute to the process of purchase.
In addition to this, experience at particularly management level does not necessarily translate
into the capability to own a specific business. Essentially, the team of MBO have the

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requirement to make certain that it possesses the appropriate mix of skills to lead a specific
business (Rao‐Nicholson & Salaber, 2016). Apart from this, certain employees also
sometimes get caught for violating insider trading regulations by intentionally permitting the
business concern to underperform, in that way, lessening the price of sale during the period of
negotiations.
Solution to Question 4:
Discussion of three methods of acquiring companies
The three different mechanisms of acquisition include:
- Horizontal mergers
Kotapati (2015) recommends that horizontal mergers take place at the time when a company
merges otherwise takes over another corporation that delivers the similar or identical lines of
product as well as services to the end clients. This refers to the fact that it operates in the
similar industry and same phase of production. Corporations, in this specific case, are
normally direct rivals.
Examples: in case if a corporation manufacturing cell phones merges with another
corporation operating in the sector that manufactures cell phones, then in that case it can be
referred to as horizontal merger.
- Vertical Mergers
Rao‐Nicholson & Salaber (2016) suggests that a vertical merger is undertaken with the
intention of combining two different corporations that are in the similar value chain of
manufacturing the same products as well as services. However, only variance exists is the
phase of production at which they are functioning.
For instance, in case if a specific clothing shop takes over a specific textile factory then it can
be indicated as the vertical merger as the industry is the same (that is the clothing, even
though the phases of production is necessarily different), a firm is operating in the territory
segment whilst the other operates in the secondary segment.
- Concentric Mergers
A concentric merger normally happens between corporations that serve the identical
consumers in a specific industry, although, they do not deliver the identical products as well
as services. In essence, their products might be essentially complements, products that can go

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together although technically they are not the identical products (Rao‐Nicholson & Salaber,
2016).
For instance, in case of a corporation that manufactures DVDs merges with another
corporation that manufactures DVD players, then this can be referred to as concentric merger.
Solution to Question 5:
Description of the ways of classifying the acquisition of Manco Plc
The acquisition of Manco Plc by Earling Construction can be considered as horizontal
merger. As per the given case study, Earling Construction Plc is referred to a registered firm
operating in the construction industry that is listed on the Dublin stock exchange. Manco
Construction Plc is also an enterprise that too operates in the same industry that is the
construction industry. The case study reveals that the share prices of the two different firms
were different during 2007. The share prices of Earling Construction Plc were comparatively
higher and comparatively lower in case of Manco Construction Plc.
In this case, the take-over of Manco Construction Plc by Earling Construction Plc can be
regarded as the horizontal merger. This is so because the company Earling Construction
merges with another corporation that manufactures similar products as well as services (Xu,
2017).
Solution to Question 6:
Evaluation of seven reasons behind why Earling Plc can consider acquisitions
Different reasons why the company Earling Plc can take into account acquisition include the
following:
-Enhancing capabilities:
Enhanced capabilities might stem from prolonged research as well as development
opportunities or more vigorous manufacturing operations (or else any specific range of core
competencies a firm wants to enhance). The companies Earling Plc and Manco Plc might
combine to leverage diverse manufacturing functions.

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-Acquiring a competitive advantage and larger share of the market
The companies Earling Plc and Manco Plc might intend to combine for gaining a superior
distribution or else marketing network (Xu, 2017)
-Diversification firm’s products as well as services
These two corporations might decide to combine products as well as services in order to
acquire a competitive edge over others in the place of market.
-Replacement of leadership
Earling Plc might decide acquisition of Manco Plc as the management of the firm failed to
recognize a leader within the firm who could help in succeeding (Davies et al., 2015)
-Reduction of costs
The two firms have identical products therefore combing can help in creating opportunity to
lessen costs.
-Surviving
During the period of financial crisis, these companies combined in a bid to deleverage Manco
Plc’s failing financial statements
-Synergy
The decision to acquire Manco plc can help in synergy. This is the notion that by combining
various business actions overall performance will rise and at the same time costs will decline
(Davies et al., 2015).
Details of familiar case in which approach of acquisition failed
A familiar case where acquisition tactic failed for particularly acquirer is as mentioned
below:-
During the year 2005, eBay Inc purchased Skype for a specific amount of $2.6 billion.
Particularly, the price of purchase was enormously high taking into account that the firm
Skype only had $7 million as their revenue. Essentially, the CEO of the firm e-bay Meg
Whiteman, validated that acquirement by arguing that the firm Skype would enhance the site
of auction by providing its end users a superior platform for the purpose of communication.

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Finally, the users of e-bay discarded the technology of Skype as redundant for undertaking
auctions and the grounds for the purchase dissolved. Again, it was seen that after two years of
acquirement, the company e-bay declared its shareholders that it would necessarily write
down the entire value of business concern Skype by around $900 million. During the year
2011, the firm e-bay was privileged to acquire a higher bidder for particularly Skype. In
particular, it marketed Skype to firm Microsoft and thereafter realized profit amount of
approximately $1.4 billion. Whilst the merger of eBay and Skype failed as eBay erroneously
enumerated the demand of their customers for the product of Skype and other deals of M&A
have failed for entirely different causes (Titman et al., 2017).
Solution to Question 7:
Three ways a company can disburse for the target company in a specific take-over
Payment for acquisition using stock
The shareholders of selling business entity can swap firm’s shares for acquirer’s shares (Xu,
2017). Again, exchange process of stock-for-stock can be considered to be effective for the
particular seller when the shareholders do not want to identify taxable gains.
Payment for acquisition using debt
The acquirer might include debt in the form of its deal to purchase acquiree. Essentially, this
can prove to be beneficial to specifically shareholders of the seller as they do not disburse
income taxes until they accept the debt disbursement (Xu, 2017).
Payment for acquisition using cash
The primary method for making disbursements is using cash chosen by the shareholders of
acquires. This is essentially appreciated by various shareholders who are not capable to
market their stock by other ways (Xu, 2017).
Suggestions regarding the way Earling might help in financing acquirements
-Loans secured by fixed assets

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Purchasing a business often entails buying of real estate or else any other equipment (Kansal
& Chandani, 2014). There are fixed assets that have the tendency to maintain value over a
period of time and can be utilized as collateral.
-Promoting flexibility with mezzanine financing
The management of Earling Plc can secure conventional financing and in case if they do not
want to dilute the terms of ownership, then in that case mezzanine financing can be used
(Kansal & Chandani, 2014). This specific way of financing delivers flexible terms as well as
conditions and calls for little otherwise no collateral.
-Raise supplementary equity
Based on the current circumstances and the total amount of money to be raised, it is
important to look for equity investment from a specific venture capitalist, angel financiers as
well as private equity financiers (Boschma & Hartog, 2014).
Solution to Question 8:
Explanation of the probable risks Manco Plc might encounter in case paper offer is
extended
A specific takeover bid in which the purchasing corporation Earling Plc offers their own
shares in exchange for shares in the corporation that is necessarily taken over (that is, Manco
Plc). This is delivered in place of cash offer. As per the case study, Earling Plc privately
regarded to present a paper offer of share-for-share in case the cash offer was discarded.
In this stock-for-stock process of exchange for take-over, the seller essentially shares with
specific acquirer firm particular risk that benefits of acquirement might not get realized and
attained (Kansal & Chandani, 2014). Therefore, in case if the acquirer deduces a price for
purchase founded on realization of gains from synergy along with the gains that are not
attained, then it is fairly possible that the specific market might perhaps force in bringing
down the price of the shares. Again, in case if the shareholders of the seller firm own a
number of these shares, then the overall value of the disbursement made to them might
decline.

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Conclusion
The above mentioned study helps in gaining comprehensive understanding as regards merger
and acquisition with special orientation to the given case of Earling Construction Plc and
Manco Construction Plc in the backdrop of financial crisis. This study also helps in acquiring
deep insight regarding takeover, ways to defend takeovers, specific financial issues in an
acquisition and helps in identification of exposure of the corporation to financial risk with
special reference to the given case. In addition to this, this study also helps in gaining
comprehensive understanding regarding the techniques that are essential to deal with the
risks. The current case is analysed analytically to evaluate takeover bid, target and predator
firms, reasons for considering takeover by Earling and the ways that could have been adopted
by Manco for defending the same.

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References
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strategies to postmerger integration: a configurational perspective of human resource
management. Journal of Management, 0149206315626270.
Davies, R. B., Desbordes, R., & Ray, A. (2015). Greenfield versus merger & acquisition FDI:
Same wine, different bottles?.
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Business, Management And Accounting, 2(2), 51-58.
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acquisition. Procedia Economics and Finance, 11, 208-217.
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Titman, S., Keown, A. J., & Martin, J. D. (2017). Financial management: Principles and
applications. Pearson.
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