University Finance Case Study: Mergers and Acquisitions Solution

This case study solution addresses the Mergers & Acquisitions scenario of Genie Inc. considering the acquisition of Aladdin. It begins by calculating the total value of the acquisition and the maximum price per share. The solution then analyzes the consolidated financial statements of both companies after a potential merger, evaluating the impact on share value if cash is used for the purchase. It compares cash and stock acquisition methods, considering factors like risk, control, and tax benefits. The document also outlines five defensive tactics a target company can employ to thwart a takeover attempt and calculates the synergistic benefits from the acquisition. Finally, it recommends whether Genie Inc. should proceed with the acquisition and suggests using the cash method for the acquisition to improve market share and maintain control.

Running head: CASE 3 MERGERS & ACQUISITIONS
Case 3: Mergers & Acquisitions
Name of the Student:
Name of the University:
Author Note

1CASE 3 MERGERS & ACQUISITIONS
Table of Contents
Answer to 1:...............................................................................................................................2
Answer to 2:...............................................................................................................................2
Answer to 3:...............................................................................................................................2
Answer to 4:...............................................................................................................................3
Answer to 5:...............................................................................................................................3
Answer to 6:...............................................................................................................................4
Answer to 7:...............................................................................................................................4
Answer to 8:...............................................................................................................................4
References:.................................................................................................................................5

2CASE 3 MERGERS & ACQUISITIONS
Answer to 1:
Particulars Value
Inventory 1,08,000
Accounts receivable 1,67,000
Net fixed assets 75,00,000
Retained earnings 1,22,000
Accounts payable -5,00,000
Notes payable -4,75,000
Long term debt -20,00,000
Total value of acquisition 49,22,000
The total value of the acquisition is at the levels of $4,922,000.
Answer to 2:
Particulars Value
Number of shares 10,00,000
Total value of acquisition 78,97,000
Maximum price per share 7.90
The maximum share price that would be included for the organisation is at the levels
of $7.90.
Answer to 3:
Particulars Genie Aladdin Consolidated
Cash 80,00,000 -
Inventory 5,83,000 1,08,000 6,91,000
Accounts receivable 8,33,000 1,67,000 10,00,000
Net fixed assets 2,00,00,000 75,00,000 2,75,00,000
Retained earnings 2,75,000 4,22,000 6,97,000
Shares in Aladdin 77,50,000 77,50,000
Accounts payable -10,00,000 -10,00,000
Notes payable -34,17,000 -34,17,000
Long-term debt -1,00,00,000 -1,00,00,000
Equity 50,00,000 50,00,000
2,02,74,000 2,82,21,000

3CASE 3 MERGERS & ACQUISITIONS
Particulars Value
Total value 2,82,21,000
Total
shares 2,50,00,000
Share value 1.13
The calculation have indicated that if share are purchased by using the cash amount
the overall share value would mainly decline to the level of 1.13.
Answer to 4:
There are different type of factors that needs to be taken into consideration, while
cash acquisition or stock acquisition.
 Risk and reward factor needs to be considered, as with the implementation of cash
acquisition the overall risk and reward is high, while using the stock acquisition the
risk s diversified, while reward is high (Zhang et al. 2015).
 The control factors in cash acquisition is high, while in stock accusation the overall
increment in shares could be witnessed, which might reduce the control of the
business.
 Financing is mainly used in cash acquisition, while stock acquisition requires shares.
 There is tax benefit, while using the cash acquisition method, while the stock
acquisition method does not have any tax reimbursements.
Answer to 5:
The five different defensive tactics that the target company can use to thwart this
takeover attempt are depicted as follows.
 Supermajority

4CASE 3 MERGERS & ACQUISITIONS
 Dual class stock
 Flip in
 The Golden Parachute
 The Staggered Board defence (Greve and Man Zhang 2017)
Answer to 6:
The synergistic benefits from this acquisition will be $300,000 per year for the
foreseeable future.
Answer to 7:
Yes, the company should use the diversification as a benefit of the acquisition, as it
would allow Genie to improve their revenues in the long run and have higher net profits in
the process.
Answer to 8:
Genie should go ahead with the acquisition by using the cash method, as it would
allow the company to have sufficient control and improve their market share price value in
the process.

5CASE 3 MERGERS & ACQUISITIONS
References:
Greve, H.R. and Man Zhang, C., 2017. Institutional logics and power sources: Merger and
acquisition decisions. Academy of Management Journal, 60(2), pp.671-694.
Zhang, J., Ahammad, M.F., Tarba, S., Cooper, C.L., Glaister, K.W. and Wang, J., 2015. The
effect of leadership style on talent retention during merger and acquisition integration:
Evidence from China. The International Journal of Human Resource Management, 26(7),
pp.1021-1050.