BBA 4005: Analysis of Merger and Acquisition Cases in Finance

This report delves into the motives driving mergers and acquisitions (M&A) in the finance sector, providing a comprehensive analysis of the key drivers behind corporate consolidation. It explores common motives such as value creation, diversification, asset acquisition, enhanced financial capa...Read More

Running head: CASES IN FINANCE
Cases in Finance
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Chapter 1: Introduction..............................................................................................................2
Chapter 2: Merger and Acquisition Motives..............................................................................2
Chapter 3: Two Recent Mergers and their Motives...................................................................4
Chapter 4: Conclusion................................................................................................................5
References..................................................................................................................................6

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Chapter 1: Introduction
The key objective of this report is the analysis and evaluation of different motives
behind the occurrence of merger and acquisition. Merger and acquisition is considered as a
crucial aspect in the world of corporate finance where two companies gather together to
create more value by maximizing wealth and reducing competition (Florio, Ferraris and
Vandone 2018). This report aims at the discussion of the main motives of merger and
acquisition by providing real life example from Australia.
Chapter 2: Merger and Acquisition Motives
Business organizations pursue merger and acquisition with different motives and
followings are the most common motives of merger and acquisition.
Value Creation – Two business organizations may take the decision of merger and
acquisition with the motive to increase the wealth of the shareholders. Synergies are created
out of consolidation of two business organizations that contribute to the increase in the value
of newly developed business organization. Fundamentally, synergy refers to when the sum of
the value of the two business organizations is surpassed by the value of the merged business
organization. Two types of synergies can be seen which are revenue synergy and cost
synergy (Miśkiewicz 2017).
Diversification – Merger and acquisitions are frequently undertake by the business
organizations for diversification motive. For instance, merger and acquisition may be used by
a business organization to enter into a new market or to offer new products or services.
Another motive is that the managers of the business organizations may arrange merger and
acquisition for risk diversification associated with the business activities. Hence, risk
diversification is a key motive of merger and acquisition (Lee 2017).

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Asset Acquisition – One key motivation of undertaking merger and acquisition can be
acquiring certain assets that are not possible to acquire by utilizing other methods. It is a
common practice in merger and acquisition that this method is used by the business
organizations for gaining access to unique assets that take long time to be developed. For
instance, gaining access to new technologies is a common objective of the organizational
managers in merger and acquisition (Vazirani 2015).
Enhanced Financial Capability – Every business organization faces a maximum financial
capability of financing its business operations either through equity capital or through debt
capital (Miśkiewicz 2017). A business organization can take the decision of merger and
acquisition due to the absence of adequate financial capability for financing its business
operations and business expansion. Due to the occurrence of the merger and acquisition, a
consolidated business organization will protect a higher financial capability of the merger
business organization so that it can enjoy further business development and business
expansion (Miśkiewicz 2017).
Taxation Purpose – There are instances where major amount of taxable income is generated
by the business organizations (Miśkiewicz 2017). In this kind of situation, a business
organization with higher taxable income can merge with another business organization with
extensive carry forward tax losses. After the occurrence of the merger and acquisition, the
consolidated business organization’s total tax liability will be much lower than the tax
liability of the independent business organization. This needs to be considered as one of the
main motives of merger and acquisition (Lee 2017).
Managerial Incentives – On occasions, the primary motivation of merger and acquisition is
the personal interest and goals of the senior managements of the business organizations
(Miśkiewicz 2017). For instance, a business organizations developed because of a merger and

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acquisition guarantees increased prestige and power that is a favourable condition for the
senior managements. This motive can also be reinforced by the senior management’s desire
of building a bigger business organization in the industry in terms of size (Vazirani 2015).
Chapter 3: Two Recent Mergers and their Motives
Merger between Australian Finance Group Ltd and Connective Group Pty Ltd
Australian Finance Group has entered into a binding conditional implementation deed
for merging with the mortgage aggregation business of Connective Group Pty Ltd
(accc.gov.au 2020). Since both the companies operate in the same industry as it is a
horizontal merger, the main motive of this merger is to combine the business of these two
companies for the creation for the creation of synergies where the combined value of these
two companies will surpass the value of the single company (afgonline.com.au 2020).
Expansion of the business is the business in order to make the company bigger through the
creation of major national mortgage distribution network is another crucial motive of this
merger. In addition, diversification of the product and service line of Australian Finance
Group is a prime motive of this merger since both the companies deal with different products
(afgonline.com.au 2020). This merger provides greater choice for both the consumers and
brokers.
Acquisition of 19.9% Interest of Alliance Aviation Services Ltd by Qantas Airways Ltd
Qantas Airways has purchased 19.9% stake in charter flight operator Alliance Airlines
and the main motive of this acquisition is to become the majority owner of this airline after
the approval of the competition watchdog (accc.gov.au 2020). The boarder motive of this
acquisition by Qantas Airways is to increase its market share in the Australian aviation
industry so that it become bigger (accc.gov.au 2020). As per the assessment of Qantas
Airways, there will be rise in the future demand in the Australian aviation industry and this

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acquisition of Alliance Airlines would let Qantas Airlines to cater to this increasing demand
in better manner (smh.com.au 2020).
Chapter 4: Conclusion
Two business organizations can create value and diversify its products and services
through adopting the strategy of merger and acquisition. This enhance the financial capability
of the business organizations and helps in acquiring business assets, reducing tax liability and
making the business bugger. The main motive of Australian Financial Group to acquire
Connective Group Pty Ltd is to increase its value and market share while ensuring
diversification in products and services. The same motive can be seen in the acquisition of a
part of Alliance Airways by Qantas Airlines as the aim of the latter is to increase its market
share and presence through acquiring the former.

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References
Australian Competition and Consumer Commission. 2019. Australian Finance Group Ltd -
Connective Group Pty Ltd. [online] Available at:
https://www.accc.gov.au/public-registers/mergers-registers/public-informal-merger-reviews/
australian-finance-group-ltd-connective-group-pty-ltd [Accessed 5 Feb. 2020].
Australian Competition and Consumer Commission. 2019. Qantas Airways Ltd - acquisition
of 19.9% interest in Alliance Aviation Services Ltd. [online] Available at:
https://www.accc.gov.au/public-registers/mergers-registers/public-informal-merger-reviews/
qantas-airways-ltd-acquisition-of-199-interest-in-alliance-aviation-services-ltd [Accessed 5
Feb. 2020].
Australian Finance Group - AFG. 2019. AFG and Connective announce merger - Australian
Finance Group - AFG. [online] Available at: https://www.afgonline.com.au/corporate/afg-
news/afg-and-connective-announce-merger/ [Accessed 5 Feb. 2020].
Florio, M., Ferraris, M. and Vandone, D., 2018. Motives of mergers and acquisitions by state-
owned enterprises. International Journal of Public Sector Management.
Hatch, P. 2019. Qantas buys stake in charter flight operator, hopes to become majority
owner. [online] The Sydney Morning Herald. Available at:
https://www.smh.com.au/business/companies/qantas-buys-stake-in-charter-flight-operator-
hopes-to-become-majority-owner-20190201-p50v1i.html [Accessed 5 Feb. 2020].
Lee, D., 2017. Cross-border mergers and acquisitions with heterogeneous firms: Technology
vs. market motives. The North American Journal of Economics and Finance, 42, pp.20-37.
Miśkiewicz, R., 2017. Knowledge transfer in merger and acquisition processes in the
metallurgical industry. PWN.

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Vazirani, N., 2015. A Literature Review on Mergers and Acquisitions Waves and
Theories. SIES Journal of Management, 11(1).