merger and acquisition
Merger and Acquisition
Intercontinental Hotel Group Timeshare Business spin-off
To spin off is to come up with a new independent firm by selling or distributing new shares in an already existing venture or dividing the mother company (“Mergers and Acquisitions,” 2004). A spin-off is one type of divestment (“Mergers and Acquisitions,” 2004). A business that wishes to rationalize its operations usually gets rid of the less profitable units by selling them off as spin-offs. For instance, a company might decide to sell off one of its fully developed business units if they are experiencing trouble growing (“Mergers and Acquisitions,” 2004). This is to help the company focus more on the rest of the units that are doing well. This paper tackles the factors around spin-offs and whether or not intercontinental hotel should proceed with its spin-off plan.
Spin-offs come with their fair share of advantages as well as disadvantages. Taking all those into consideration, I would advise the manager to carry on with his idea. The separation of the timeshare business from the rest of the group’s businesses would help the group raise more “equity funds.” This spin-off is also likely to boost the group’s rating in more than one way. The sale of the timeshare business could, for instance, give stronger incentives to the employees of the separating entity. It will also take some weight off the Intercontinental Hotel Group’s manager as they will be able to focus on fewer and more profitable operations. Apart from the management, the shareholders will also rip some benefits from this. They will then be able to receive more comprehensive information about the new business entity since it will be providing an isolated financial statement (“Mergers and Acquisitions,” 2004). A separate statement places investors in a better position to evaluate the value of the mother corporation. This way, Intercontinental Hotel Group is likely to appeal to more investors and, eventually, acquire more capital. Finally, the spin-off of the timeshare business would lower the internal competitions within the group. This is always good news for investors as it lowers the negative wrangling within the corporation that threatens its unity and success (“Mergers and Acquisitions,” 2004).
Gillette to Double Sales Two Years after Acquisition
Mergers and acquisitions have for a long time been regarded as opportunities for growth amongst companies. A proper acquisition can be one of the most significant ways to improve a business (“Mergers and Acquisitions,” 2004). Mergers and acquisitions have a significant percentage of risks,, especially for the acquiring company. Procter and Gamble (PNG), from the information provided, is a company with a broad range of products and outlets all over the world. Despite the risks involved in the acquisition process, both companies can rip big from the process. This section provides us with insights on how Gillette can take advantage of its acquisition to double its sales within two years after acquisition.
The first way Gillette can achieve its target sales post-acquisition is to eradicate redundant functions and save costs. Typically, the cost savings arise from getting rid of services, facilities and involved expenses that will no longer be required after the acquisition. Since PNG and Gillette both produce similar products, the two companies could merge certain functions like advertisement and procurement. Through the merger, Gillette could cut down on its operation costs through the economies of scale they would enjoy by being acquired by PNG. Since the two are in the same sector as earlier mentioned, the merged entity could purchase the raw materials they need in bulk at lower costs. Gillette could then cut down on its cost of operation and focus more on production to avail more products to their clients.
PNG, as I am fully aware, has many outlets throughout the six continents. Acquiring Gillette means that Gillette would then be able to reach all the regions covered by PNG that it could not reach before. This extended reach could be very beneficial to Gillette if they do enough inquiry and understand their new client base well. With increased production from money saved by the eradicated redundancies, Gillette will have more products to sell to the expanded m market. One more way Gillette could achieve double sales digits is to cut down on their taxation as much as possible through the acquisition. The two companies could redistribute their operations to ensure that the total taxation on the combined entity is lower than the amount the two would incur separately. In a nutshell, for Gillette to achieve their goal, they need to use the merger to cut costs as much as they can. Cutting costs means more money to invest in production and more products to sell to the new market, resulting in overall increased sales.
Mergers and Acquisitions: Break Ups | Investopedia. (2004, April 19). Retrieved November 11, 2015, from http://www.investopedia.com/university/mergers/mergers4.asp