Mergers combined rather than being a single organization.

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Last updated: May 15, 2019

Mergersare normally portrayed as the union of two associations into a solitaryassociations though acquisitions are described as buying of one associationfrom another where the purchaser or acquirer is in control (Borys and Jemison,1989).Thereare three basic type of merges, namely horizontal, vertical and conglomerate. Horizontalmerging is defined as a merge of organizations in the same industry more oftenthe competitors, vertical merger is defined as the merging of two organizationswhich perform at different production stages in the value chain andconglomerate merger is when an organization merges with an organization in adifferent industry.  In this particularscenario the type of merger is a horizontal one.Thereare many justifications to the M&A activity. Acquisitions can only bejustified if the shareholder wealth of acquirer is increased. According toWatson and Head (2013), combination of two organizations should increase in theshareholder wealth because their worth increases when combined rather thanbeing a single organization. This will further enable to gain a higher growthin Santander’s market share because Santander now owns all the shares ofPopular.

Ananalyst presentation made by Santander for the acquisition of Bank Popularindicates what Santander plans to achieve with the M of Popular. Mof Santander and Popular will create a synergistic value. Theyhave planned to leverage their economies of scale, optimize the combinednetwork of branches, HQ optimization and conduct their operations in one singleIT platform. By 2020 Santander targets to have a EUR c.500m before tax c.33% ofPopular or c.10% of the combined 2017 cost base of Spain and Portugal.

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Goingfurther beyond the synergistic value Santander would also gain a strategicvalue by this M activity. Santander aims to build up a strong strategicrationale which will make Santander the leader in commercial and retail bankingafter the acquisition of Popular.Duediligence s one of the main challenge that merge and acquisition process has toface.

Due diligence is the evaluation of any associated risks thereforevaluation is considered as one of the main component in due diligence. Thusfocusing on the issues of M activity it is important that a propervaluation has been carried out by Santander based on the acquisition of Popularbank.Anappropriate valuation will aid in determining how the business in Popular banklooks like. There are several valuation methods that can be used such asdiscounted cash flow (DCF), free cash flow (FCF), asset valuation method. Themost commonly used valuation method is the discounted cash flow method. DCF is an income based valuation method.

By usingdiscounted cash flow the present value is estimated. By using this presentvalue the investment potential is evaluated. Compared to the current cost ofthe investment if the value obtained by the DCF is higher it is considered as agood opportunity. The company’s assets are valued using the asset basedvaluation method. The most commonly used method is assessing the book valueswhich can be found in the company’s financial statement. Concentrating on the methods of financing theacquisition there are several methods such as cash offers, share to share offers.The company which does the purchasing usually wants to minimize the amountwhich is paid to the shareholders of the target company, thus not paying morethan the pre-merger value. In contrast the shareholders of the target companywants to maximize the gain by not accepting anything below the pre-mergervalue.

  The policy in which the company decides how much dividends theywill pay to their shareholders is known as the dividend policy. There aredifferent types of dividend policies such as the residual dividend policy whichuses the internally generated equity in funding the new projects. Fixedpercentage payout ratio policy where the company will pay dividends as a fixedpercentage of the annual profit. Shareholdervalue is defined as the return on the invested capital. If this was createdfrom a long time then a quite larger dividends can be paid to the shareholders.Therefore with the M activity Santander aims to achieve a shareholder value creation: targeting 13-14%RoI (Return on Investment) by the year 2020.

 Mergersare normally portrayed as the union of two associations into a solitaryassociations though acquisitions are described as buying of one associationfrom another where the purchaser or acquirer is in control (Borys and Jemison,1989).Thereare three basic type of merges, namely horizontal, vertical and conglomerate. Horizontalmerging is defined as a merge of organizations in the same industry more oftenthe competitors, vertical merger is defined as the merging of two organizationswhich perform at different production stages in the value chain andconglomerate merger is when an organization merges with an organization in adifferent industry.

  In this particularscenario the type of merger is a horizontal one.Thereare many justifications to the M activity. Acquisitions can only bejustified if the shareholder wealth of acquirer is increased. According toWatson and Head (2013), combination of two organizations should increase in theshareholder wealth because their worth increases when combined rather thanbeing a single organization.

This will further enable to gain a higher growthin Santander’s market share because Santander now owns all the shares ofPopular. Ananalyst presentation made by Santander for the acquisition of Bank Popularindicates what Santander plans to achieve with the M&A of Popular. M&Aof Santander and Popular will create a synergistic value. Theyhave planned to leverage their economies of scale, optimize the combinednetwork of branches, HQ optimization and conduct their operations in one singleIT platform. By 2020 Santander targets to have a EUR c.

500m before tax c.33% ofPopular or c.10% of the combined 2017 cost base of Spain and Portugal.

Goingfurther beyond the synergistic value Santander would also gain a strategicvalue by this M&A activity. Santander aims to build up a strong strategicrationale which will make Santander the leader in commercial and retail bankingafter the acquisition of Popular.Duediligence s one of the main challenge that merge and acquisition process has toface. Due diligence is the evaluation of any associated risks thereforevaluation is considered as one of the main component in due diligence. Thusfocusing on the issues of M&A activity it is important that a propervaluation has been carried out by Santander based on the acquisition of Popularbank.Anappropriate valuation will aid in determining how the business in Popular banklooks like. There are several valuation methods that can be used such asdiscounted cash flow (DCF), free cash flow (FCF), asset valuation method.

Themost commonly used valuation method is the discounted cash flow method. DCF is an income based valuation method. By usingdiscounted cash flow the present value is estimated. By using this presentvalue the investment potential is evaluated. Compared to the current cost ofthe investment if the value obtained by the DCF is higher it is considered as agood opportunity. The company’s assets are valued using the asset basedvaluation method. The most commonly used method is assessing the book valueswhich can be found in the company’s financial statement.

Concentrating on the methods of financing theacquisition there are several methods such as cash offers, share to share offers.The company which does the purchasing usually wants to minimize the amountwhich is paid to the shareholders of the target company, thus not paying morethan the pre-merger value. In contrast the shareholders of the target companywants to maximize the gain by not accepting anything below the pre-mergervalue.  The policy in which the company decides how much dividends theywill pay to their shareholders is known as the dividend policy. There aredifferent types of dividend policies such as the residual dividend policy whichuses the internally generated equity in funding the new projects. Fixedpercentage payout ratio policy where the company will pay dividends as a fixedpercentage of the annual profit.

Shareholdervalue is defined as the return on the invested capital. If this was createdfrom a long time then a quite larger dividends can be paid to the shareholders.Therefore with the M&A activity Santander aims to achieve a shareholder value creation: targeting 13-14%RoI (Return on Investment) by the year 2020.   Mergersare normally portrayed as the union of two associations into a solitaryassociations though acquisitions are described as buying of one associationfrom another where the purchaser or acquirer is in control (Borys and Jemison,1989).Thereare three basic type of merges, namely horizontal, vertical and conglomerate. Horizontalmerging is defined as a merge of organizations in the same industry more oftenthe competitors, vertical merger is defined as the merging of two organizationswhich perform at different production stages in the value chain andconglomerate merger is when an organization merges with an organization in adifferent industry.

  In this particularscenario the type of merger is a horizontal one.Thereare many justifications to the M&A activity. Acquisitions can only bejustified if the shareholder wealth of acquirer is increased.

According toWatson and Head (2013), combination of two organizations should increase in theshareholder wealth because their worth increases when combined rather thanbeing a single organization. This will further enable to gain a higher growthin Santander’s market share because Santander now owns all the shares ofPopular. Ananalyst presentation made by Santander for the acquisition of Bank Popularindicates what Santander plans to achieve with the M of Popular. Mof Santander and Popular will create a synergistic value. Theyhave planned to leverage their economies of scale, optimize the combinednetwork of branches, HQ optimization and conduct their operations in one singleIT platform.

By 2020 Santander targets to have a EUR c.500m before tax c.33% ofPopular or c.

10% of the combined 2017 cost base of Spain and Portugal.Goingfurther beyond the synergistic value Santander would also gain a strategicvalue by this M activity. Santander aims to build up a strong strategicrationale which will make Santander the leader in commercial and retail bankingafter the acquisition of Popular.Duediligence s one of the main challenge that merge and acquisition process has toface. Due diligence is the evaluation of any associated risks thereforevaluation is considered as one of the main component in due diligence. Thusfocusing on the issues of M activity it is important that a propervaluation has been carried out by Santander based on the acquisition of Popularbank.

Anappropriate valuation will aid in determining how the business in Popular banklooks like. There are several valuation methods that can be used such asdiscounted cash flow (DCF), free cash flow (FCF), asset valuation method. Themost commonly used valuation method is the discounted cash flow method.

DCF is an income based valuation method. By usingdiscounted cash flow the present value is estimated. By using this presentvalue the investment potential is evaluated. Compared to the current cost ofthe investment if the value obtained by the DCF is higher it is considered as agood opportunity. The company’s assets are valued using the asset basedvaluation method. The most commonly used method is assessing the book valueswhich can be found in the company’s financial statement. Concentrating on the methods of financing theacquisition there are several methods such as cash offers, share to share offers.The company which does the purchasing usually wants to minimize the amountwhich is paid to the shareholders of the target company, thus not paying morethan the pre-merger value.

In contrast the shareholders of the target companywants to maximize the gain by not accepting anything below the pre-mergervalue.  The policy in which the company decides how much dividends theywill pay to their shareholders is known as the dividend policy. There aredifferent types of dividend policies such as the residual dividend policy whichuses the internally generated equity in funding the new projects. Fixedpercentage payout ratio policy where the company will pay dividends as a fixedpercentage of the annual profit. Shareholdervalue is defined as the return on the invested capital.

If this was createdfrom a long time then a quite larger dividends can be paid to the shareholders.Therefore with the M activity Santander aims to achieve a shareholder value creation: targeting 13-14%RoI (Return on Investment) by the year 2020.     

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