Differences between Operating and Financial Synergy - Essay Example

Essentially Synergy refers to the combination of any two things that are more valuable as a combined entity rather than “the sum of their parts.” Financial Synergy occurs when the holding company cannot raise capital as quickly or as inexpensively as they can within their subsidiaries, which is, overall, easier and cheaper to raise capital. Operating synergy is different. It focuses on including considerations involving the scope and scale of the economy. This state of Operating Synergy occurs when two firms merge when they are both already manufacturing and operating below their actual capacity. This results in a reduction per unit output and an increase in their average rate of operation. Such mergers can be extremely beneficial to companies that can benefit from the future advantage of multiple manufacturers supported by a singular center. This can prove to be quite cost-effective in the long term.

2. What are the advantages and disadvantages of the friendly versus hostile approaches to a corporate takeover?
Hostile takeovers are sometimes preferred because it allows the takeover firm to, essentially, ambush the target company, giving them no time to react, preempt, or interfere with such a takeover. It forces the hands of the target company giving them little beneficial choice in attempting to impede the takeover. Friendly takeovers are only really beneficial when the takeover company wants to maintain much of the staff and management and prevent any interference in productivity. A friendly takeover comes with a warning and can encourage more cooperation; however that is not always the case. Sometimes, the foreknowledge of the takeover can lead to the target company, raising the value of its stocks and granting the greater opportunity to impede the process if they so wish. Both have advantages and disadvantages, but it’s the opportunity that the element of surprise offers that makes hostile takeovers so common.
3. What are the four basic types of business-level strategies that companies commonly pursue, and how are they different?

The four basic types of business-level strategies that companies commonly pursue are.
1. Price or Cost leadership: Cost leadership develops a firm with the lowest cost of operation within their industry and aims to increase the scale of production. Price leadership refers to a business that may be the one with the lower cost to produce but not necessarily selling its products and services at the lowest cost.
2. Product differentiation: A company that works to make its products so very different in their appearance and packaging to set it apart from its competitors. This can be lucrative for a business as the consumers perceive the unique appearance as a sign of a superior product.
3. Focus or niche strategies: Refers to a firm or company that specifies its products to a specific demographic or group that is not necessarily the majority of consumers. Essentially it is an opportunity to become a mainstay within that product industry.
4. Hybrid Strategies: This, simply, refers to firms that option to combine the different styles and incorporate elements of each. In other words, it focuses on efficient cost-effective production, works to make its product unique amongst its competitors, and seeks out its appropriate niche to guarantee greater profit.

4. Identify at least three criteria that might be used to select a manufacturing firm as a potential acquisition candidate. A financial services firm? A high technology firm?

Any given business must be wise in choosing the manufacturing, financial, and high-technology firms that they employ for their business. There are some very important criteria that they will consider when making the selection of each. When seeking a financial servicing firm they may consider the distribution channels that they make available, whether they are a branch system or an online delivery service. When selecting a manufacturer they must consider their familiarity with their industry, where they are located and their range, and whether are they cost-effective overall. Finally, in modern businesses the quality of their high technology companies is ever so important, both, for the security of information and the value of their technologies, traditional or emerging technologies, and will their inclusion provide greater profit or just greater cost. Read More