The main problem when carrying out similar procedures is the dostivzheniye of the efficiency of merge/absorption taking place only at increase in welfare of shareholders and achievement of competitive advantages. On it it is necessary to pay special attention as among the transactions on merges/absorption which are carried out recently the share unsuccessful is rather great, inefficient, leading subsequently to disintegration of the united company.
In other words, welfare of shareholders of the acquired company will increase practically in all cases while "wealth" of shareholders of the getting company will grow only on condition of improvement of financial performance of activity of the united company that has to be incentive for the top management of the company. In this regard the management of the company should not be fond of receiving high profit in the short-term period to the detriment of long-term efficiency of functioning of the company.
It is logical that the transaction on merge/absorption can be considered effective if benefit which is received by the company, exceeds costs, that is if true benefit for each of the parties is size positive.
Let's say shareholders of the company B agreed to go for merge thus that the company A is ready to pay 35 dollars for each action (that exceeds the current market value of the stock of the company on 5 dollars. Then the exchange ratio will make 35 dollars/64 dollars = 0,547 shares of the company And for 1 share of the company B. The company A redeems shares of the company of B completely. For providing shareholders of the company B of their shares in the capital of the AB united company of the company A it is necessary to carry out additional issue in volume (2 000 000 shares of the company * (0,54 = 1 093 750 actions.
For a start it should be noted that the initiator of the transaction, as a rule (and that is quite logical and obvious), larger company is. Let's allow that the company A which declared the intention of carrying out merge to the company B is.
Is obvious that fact that to interest shareholders of the acquired company B in transaction, the company A need to provide such conditions under which shareholders of the company B will have a certain income. For this purpose the company A buys from shareholders of B of their action at the price exceeding the current market value. Thus award size often represents quite big size.
In due form merge does not bring economic benefits to the companies directly during transaction. That is in the short-term period of time two companies have to cost exactly as much, how many and separately, and to bring together the same volume of profit, as well as separately. However we see that the profit indicator on one action increased by 0,1 dollars. The essence of "effect of starting start" just also is that the increase in the profit falling on one action without any real reasons concerning directly improvement of financial performance of activity of the united company is observed.
Its essence is that for the company getting in this case operation of the bought object can be much more expedient, than for selling. As a result the getting company is ready to pay for object more, than it is estimated by the selling company.