Mergers & Acquisitions (M&A) are an important part of the ACCA P4 syllabus and are also featured in CIMA F3. Those of you that have read our free ExPress notes (/expand/17-p4_advanced_financial_management.html) will be aware that to minimize the risk of failure in the M&A process, acquiring companies should follow a systematic series of steps prior to launching a bid.
1. Clarify strategic reasons for wanting to acquire a company;
2. Draw up a short list of possible takeover targets and select the preferred one;
3. Value the target based on publicly available information and to establish an opening bid;
4. Identify financing options for the transaction
There has been a lot of coverage recently about the attempt by the American food producer Kraft to acquire the British chocolate maker Cadbury. After Kraft announced their intention to acquire Cadbury, another company (Hersey) announced their interest in acquiring Cadbury.
The sums of money involved are significant. Identifying financing options for the acquisition (point 4 above) is therefore going to be key. Kraft’s bid is £9.8bn and press reports indicate that a syndicate of 8 banks has been brought together to finance the approach. The interesting thing though is that it is reported that these 8 banks have been tied into a non-compete agreement. This means that Hersey cannot approach the same banks to finance their approach. As a result it is going to be more difficult for Hersey to raise such amounts of funds.
Whatever happens over the next few weeks this will be an interesting story to follow.