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This literature review presented what is the researched related to the topic "the strategic rationales and motives for American companies wishing to execute mergers outside the American borders". This literature review divided by two parts: (1) Mergers and Acquisitions
And (2) Doing business in European Union. It's shown that after the merger how much business they do both companies and showing reason for failure, why they became bank corrupt.
This dissertation would not have been possible without the help from lecturer. I want to thank my class lecturer Rina Baktawar.
I want to deeply thank my supervisor Professor T. P. Shing for his help, guidance, understanding and support during the last months.
The mergers are considered to be refreshing or a solution which affects extremely the operation of a project, but this is not always the situation. The effect of the mutual activities of two or more organization does not continually produce the notional profits and the additional value that could be anticipated and the companies were looking forward to. The target of mergers is the origin of added value in the new thing. The measured relation of a good merger suggests that one and one should add up to make three, in other words the creation of value that is greater than the sum of the values of the businesses involved. This chances because in the occasion that one and one add up to two, would simply be a case of adding up of opportunities and of précises, but not the attainment of desired effect, important in some examples to the making of undesirable results as well. Acquisitions is the transfer of the whole or part of the possession of a company (company being accepted) to another (company that purchase out), which pays the approved on price. The transmission usually takes place with the payment of cash or with purchasing and replacing shares, complete the Stock Exchange. In many cases, even the acquisition of a underground interest of a company it is thinkable to protected for the purchasing company actual control, if with the transmission is in a situation to affect serious adoptions of the organization and the approach of the company actuality accepted or if the rest of the shares of the certain company are believed by countless different holders.
Mergers and acquisitions corporate rearrangement are a huge part of the commercial finance world. Every day, Wall Street speculation bankers arrange merger and acquisition dealings, which bring dispersed companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the converse and break up companies concluded spinoffs, carve-outs or tracking stocks.
Opportunity of Merger:
The rationale after a spinoff, following stock is that "the parts are larger than the entire." These company rearrangement methods, which include the retreat of a business unit or secondary from the parent, can help a company raise supplementary equity funds. A break-up can also improvement a company's evaluation by if powerful encouragements to the people who work in the extrication unit, and help the parent's organization to emphasis on fundamental processes. Most prominently, shareholders get better evidence about the business unit because it subjects isolated financial statements. This is principally useful when a company's outdated line of business changes from the divided business unit. With single financial confession, investors are better prepared to instrument the value of the parental corporation. The parent company might appeal more investors and, finally, more wealth. Unraveling a secondary from its parental can diminish inside rivalry for business funds. For stockholders, that's inordinate news: it edges the kind of undesirable internal disputing that can negotiation the agreement and efficiency of a business. For workers of the new single entity, there is a widely operated stock to stimulate and payment them. Stock possibilities in the parental often afford little inducement to secondary managers, especially because their energies are forgotten in the firm's global presentation.
Discouragement of Merger:
De-merged firms are likely to be significantly minor than their parentages, probably production it solider to tap credit markets and higher finance that may be reasonable only for superior establishments. And the minor size of the firm may mean it has less depiction on chief catalogs, creation it tougher to appeal concentration from established investors. Temporarily, there are the additional costs that the parts of the business face if disconnected. When a firm divisions itself into minor units, it may be trailing the collaboration that it had as a greater unit. For occurrence, the detachment of overheads such as promotion, supervision and exploration and development into changed business elements may cause terminated costs without growing overall profits.
About Time Warner & AOL:
It's found by four brothers convinced their father to put up for sale his golden wristwatch and to purchase one of the first cinematographs. The four brothers went from town to town viewing films to the countryside population, with this cinematograph. After that, they published their own films. Warner Brothers has been authoritatively registered in 1923 in Hollywood. In 1925, Warner brothers build community and in 1930 they thrown their popular cartoon series. The Looney Tunes, such as Bugs Bunny and Daffy Duck were made the company's image in the community. Warner Brothers made lots of well-known classic films, such as Casablanca and a number of Hitchcock thrillers. Warner Brothers also created to gain many record labels.
AOL was established in 1985 under the name Quantum Computer Systems, as a popular communicating services firm as long as content and services to populated customers via dial-up modems. Initially, customers who contributed to AOL were defective to AOL content and e-mail. AOL was the first on-line service requiring the use of proprietary software, instead of a terminal standard program, with a graphical user interface well ahead of the competition. As the Internet grew in popularity, AOL also provided Internet access to the World Wide Web in addition to its proprietary content. In 1991 it changed its name to America Online Inc. The simple natural interface and a destructive marketing led the company to extremely rapid growth in the late 1990s, powered by a large number of acquisitions and environmental development.
When AOL and Time Warner publicized their merger in 2000 they had a clear vision of their collaborations. AOL believed that the combined companies had the means to be realty situated in order to bring collaborating media into customers' everyday lives and to further break through this market.
The merger will come jointly Time Warner's huge procedure of world-class media, entertainment and news brands and it's technologically advanced broadband delivery systems with AOL Internet franchises, technology and infrastructure, including the world's leading consumer online brands, the major community in Internet, and supreme e-commerce capabilities. AOL Time Warner's unrivaled resources of creative and journalistic talent, technology assets and skill, and management experience will enable the new company to significantly increase consumers' access to the broadest selection of high-quality content and communicating services.
By merging the world's primary Internet and media companies, AOL Time Warner will be exclusively situated to speed the development of the interactive medium and the growth of all its businesses. The new company will present an important new broadband allocation platform for America On line's interactive services and drive subscriber growth through cross-marketing with Time Warner's pre-eminent brands.
AOL at that time was believed to have the necessary experience to help Time Warner transform their divisions to the digital channels. Additionally Time Warner was believed to help AOL build next generation broadband. Together with Time Warner, AOL believed they could build a set of brands customers trusted in. Additionally, AOL Time Warner thought of building up facilities beyond just personal computers but also involving wireless devices, television, phones or PDAs. With the help of Time Warner AOL thought it could deliver any kind of content at any time to any place. As most likely synergies of the merger the board of AOL regarded cost reductions and opportunities of growth. Revenue opportunities were seen in areas such as advertising, growth opportunities were seen in increased numbers of cross-promotion and -marketing for Time Warner's content through the channels of AOL. Efficiency increases were seen in marketing across different platform and distribution systems, cost synergies were likely to arise due to shared business functions (i.e. R&D and cost efficiencies because of launching interactive extensions of Time Warner Brands).
Time Warner, in general, believed that through the integration of traditional and new media and communication and business technology the new company would be uniquely positioned in order to have a strong basis and take full advantage of the digital revolution. From Time Warner's view this strategic advantage emerged from "multiple brands, vast array of content, extensive infrastructure and strong distribution capabilities" and that therefore the value of AOL Time Warner combined will be higher than the value of the single companies. Time Warner regarded AOL's extensive Internet infrastructure as a new distribution medium for its brands and content. Also Time Warner believed its broadband system was an ideal distribution platform for AOL's interactive services. Furthermore, AOL's e-commerce system was regarded to be an opportunity to promote Time Warner's music labels. Linking Time Warner's established brands with AOL's interactive services promised opportunities for subscriber growth. Finally, the Time Warner board thought that through the merger the international position of the brand would be strengthened as well as the benefit for consumers increased.
After Merger financial outcome expect:
The publicity surrounding the AOL and Time Warner merger was fueled by and in turn helped to refuel the growing internet bubble. Wall Street analysts, internet gurus, and media moguls all hoped that this newly formed company would successfully integrate traditional forms of media with the new. A valuation of these two companies was complicated and unprecedented. This was the largest corporate merger to date and no one knew for certain what types of synergies and growth rates would be possible for the two companies.
Under the assumptions of a 25% supernormal growth rate and a 5% terminal period growth rate the valuation of the company was over $93 per share (Exhibits 7, 8, and 17). While these growth rates were reasonable in the context of the environment of the late 1990s their sustainability was never questioned. Many questions remained unanswered. Could AOL continue to grow subscriptions and promotion revenues? Could AOL take advantage of Time Warner's extensive cable network (if so what would this cost and how long before it materialized)? Could two large behemoths merge together? Was it AOL saving Time Warner or vice versa? The sensitivity tables attempts to answer some of these questions with technical analysis and try to judge their impact upon the share price of the newly formed firm (Exhibits 7-17). It is clear that the growth assumed in 2000 never occurred. A more realistic supernormal growth rate for the two companies would have judged their synergies to deliver 5-7% growth for the short term.
Impact on European Economic:
European Union policy making authority accept AOL and Time Warner merger $129 billion acquisition. After merger it's became the world's largest internet and media companies. But under terms of approval, AOL and Time warner accept that they will not strong from other competitor in emerging media and entertainment market, the European commission said it. Conditions of the Deal The executive agency of the 15-nation European Union said that AOL, the world's top Internet service provider with more than 24 million members worldwide, is to sever its structural links with German media giant Bertelsmann AG. The companies jointly own AOL Europe. EU authorities made quick progress on the issue after Time Warner last week dropped a separate joint venture plan with EMI Group of Britain, which would have created a major music company. European regulators had strongly opposed that deal.
If you see the past report we can find lots of reason to see why merger are not working. One of the most important causes is that AOL essentially never was an equal complement to Time Warner. At the time of the merger AOL's stocks were underestimated mainly outstanding to the Internet bubble. All through the 1990 lots of upcoming Internet start-ups, the so-called dotcoms were enormously overestimated and to some range without ever having made profit worth as much as recognized blue-chip companies because stockholders believed in their possible. Certainly only a few companies continued the "new economy"-era and are now recognized companies (Amazon or EBay). However, AOL according to its stock price was worth as much as Time Warner at the time of the merger they got the same elective and power. There still happens much disagreement around Incident's profit taking from the sale of his dividends.
The information that Circumstance sold a main part of his AOL stock soon after the merger was publicized in January 2000 (when the price was high of the AOL stock) and made an appraised profit of $ 160 million suggested thought and irritation among shareholders. They thought that Case was aware of the fate of the merger and reproached him of making money, when the time was right, at the cost of the shareholders.
However, currently AOL is definitely less worth than Time Warner. So, from today's view AOL established a too high price for its share or Time Warner paid too much for what it established in return. The stock price of AOL Time Warner fell from its peak of almost 90 US$ in 2001 down to almost 10 US$ in 2003 and right now is just at 13 US$. Also, since AOL turned out to be an incapable partner AOL Time Warner transformed its name to just Time Warner in that time and almost the entire AOL panel has been changed although many of Time Warner's directors are in charge.
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