Synergy And Corporate Synergies And Financial Synergies Essay

Synergy And Corporate Synergies And Financial Synergies Essay

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According to Thompson (2001) Synergy refers to extra value or extra benefits which appealingly is accumulated from the connection or a mixture of the two businesses, or from addition co-operation either between separate portions of the same company or between a company with its suppliers, distributors and customers. In-house co-operation may be helpful as a connection between both different work and performances, or it can be plainly be used to calculate beneficial synergy which would create the “2+2 = 5” aftermath which means that the companies are capable to increase value while joining its product-market posture. Or, two firms may be joined and a benefit may end up from synergistic to supply a cost above that of the current cost of the two liberated cash flows which symbolizes by discounted cash flow of company A, and also discounted cash flow of company B plus achieving balanced to discount cash flow of the merged firm. Also, Synergy could be divided into two different types, which is operating synergies and financial synergies.
Functioning synergies are those synergies that lets firms to develop their functioning performance and to expand the progress and development of the company in four different ways. First of all, economies of scale that may or may not appear from the merger, it lets the combined firm to be more profitable. Second of all, a higher pricing power from decreasing the competition and higher market share which could assist the company in a larger margin and operating income. Then, combination of separate working strengths from two companies could push up the operation efficiency. Last but not least, the combined firm would have higher growth in the new or existing markets with established distribution network...

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...return. However, this method can likewise be use by the target company to compute how much the premium should acquiring company may compensate for them. The premium would boost the cost for acquiring company to purchase the target company to take control. Also, the premium will deduct the synergy value and should be taken away from the calculated synergy value.
To sum up, the event study method, the contrast between the actual return and the above approximate return symbolizes an investment’s abnormal return. It calculates how the company acts over time and it is a well-known valuation method to examine if the merger and acquisition is useful or not. But this method did not consider some factors such as change in organisation structure and the working habitat but those factors will influence the cost of synergy and functioning effectiveness in different departments.

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