JB HI Fi Company: Amalgamation and Merger for Business Finance

JB HI Fi Company
Amalgamation and Merger
Business Finance
University Name-

Task-1
EXECUTIVE SUMMARY
This report is accompanied with the detail analysis of the synergy and competitive
advantage which company could get after entering into the strategic alliance such as merger,
amalgamation and takeover. This report focuses on the JB HI-FI Company and how this
company could have synergy in its business by entering into the strategic alliance. JB HI-FI
Company needs to develop core competency in its cost leadership strategy to win over its
existing and future rivals. The JB HI-FI Company is Australian retailer of consumer goods,
specialised in video games, HD ultra-blue rays, DVD and CD electronic hardware and
appliances which is indulged in offering mobile phones and other services. All the employees
are accustomed to act as suggested by its current CEO Richard Murray. Currently, share price
of company is traded at JBH (ASX) A$ 25.00 -0.28 (-1.11%) and founder of company is John
Barbuto. This company is indulged in providing electronic goods to its clients and had
mission to develop core competency in its product differentiation and cost leadership. The
retail industry has shown the overall turnover of AUD $ 1125 billion. The JB HI-FI Company
has net income of AUD $ 152 million which is 12% higher as compared to last three years.
The current financial position of company is strong and reflecting that company needs to
establish the equilibrium points between its financial risk and cost of capital. With the
increasing financial risk, it might have low cost of capital but it will also hamper the
sustainable position of company in long run. The strategic direction of company is to
strengthen its overall market share and create strong brand image in international and
domestic Australian market.
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Table of Contents
Task-1.........................................................................................................................................1
EXECUTIVE SUMMARY........................................................................................................1
INTRODUCTION......................................................................................................................2
Task-2.........................................................................................................................................3
(a) Brief overview of the CVE technologies Group.........................................................3
(b) Types of takeover and benefits associated with all deals............................................3
© Sources of synergy.............................................................................................................4
(D) Market capitalisation of the target, the synergy and hence advise the management of
the existing company on the offer price.................................................................................6
(e) Option to pay off the takeover deal or consideration to shareholders..............................7
(f) Computation of the cost of equity of company NPV and post-merger stock price..........8
Cost of equity of company.................................................................................................8
Computation of the Net present value................................................................................8
Post-Merger stock Price...................................................................................................10
Task-3.......................................................................................................................................11
(a) Company raise the capital using internal funds, debt, equity, hybrid securities or a
combination of the above.....................................................................................................11
© Share issue affects the wealth of the existing shareholders.............................................13
Task-4.......................................................................................................................................13
(A) Risk involved in takeover deal......................................................................................13
Sensitivity analysis...............................................................................................................14
Wealth maximization of the shareholder.............................................................................15
Conclusion................................................................................................................................16
References................................................................................................................................17
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INTRODUCTION
This report focuses on the strategic direction and opportunities which could be availed
by Organizaiton to expand its business in long run. The main empirical of this report is to
identify the how well company could sustain its business in long run by undertaking the new
strategic approaches and strategic alliance. It is analyzed that company should undertake
strategic alliance such as joint venture, merger and amalgamation to strengthen its overall
business outcomes and efficient business functioning. The main expansion strategy for JB
HI-FI Company would be to undertake strategic alliance with its rivals so that it could use
their machines and assets to create effective synergy in long run. This report identifies the
potential targets and options which could be availed by JB HI-FI Company to strengthen its
overall business and creating core competency in market. The main suitable target for the JB
HI-FI Company would be CVE Technology who is also the closet rival for the organization
(JB HI-FI, 2017).
(JB HI-FI, 2017).
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Task-2
The current CEO Richard Murray has identified several expansion opportunities for
tis business and by undertaking these possible plans company could easily make its business
more sustainable in long run. However, JB HI-FI Company has been facing high financial
risk in its business which might negatively impact the business growth and future
sustainability in long run. Nonetheless, if company takeovers the CVE technologies in its
business it could easily strengthen the overall outcomes and create synergy in its business (JB
HI-FI, 2017).
(a) Brief overview of the CVE technologies Group
This company is indulged in offering cost-saving, flexible solutions to meet the reverse
logistics needs of clients around the world. This company was founded as an affiliate of
Cache Valley Electric in 1955 with a view to offer best electronic equipment’s and process
system. It is also indulged in hosting cyber computing business system.
(b) Types of takeover and benefits associated with all deals
There are several strategic plans which could be undertaken by the JB HI-FI Company to
increase the overall business outcomes such as Joint venture, merger, Amalgamation.
Nonetheless, JB HI-FI Company has strong financial position and liquid assets which may be
positive for the business growth and creating synergy in its business by undertaking merger
with its potential competitors (Bekaert, & Hodrick, 2017).
Joint venture- This is the strategic alliance in which two companies is ready to pool their
assets and resources to accomplish the set object in effective manner.
Merger- It is combination of two organization which come together to create synergy from
the business. It is also called amalgamation which will allow JB Hi-Fi Company to create
value on invested capital (Bessler, & Schneck, 2016).
Takeover- It is the process in which one company buys more than 50% shares in another
company. It is analyzed that for JB Hi-Fi Company, it would be beneficial to takeover CVE
Technologies Company.
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