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Strategic Corporate Finance - Essay Example

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Strategic Corporate Finance

That is why it is usually the most preferred form of business for expansion purposes. Mergers and acquisitions are the two usual ways in which ownership is extended in the corporate landscape. A business can either buy out the ownership rights of another company in exchange for cash or shares, or the two entities can merge their businesses to form a new company altogether. The first is called an acquisition and the second a merger. In this assignment, I will be considering the advantages and disadvantages of the Coca Cola Company merging with other firms within the industry. Choice of Company to Merge With, and its Benefits My original chosen company for the SLP is the Coca Cola Corporation, USA. The company is a brand leader in its segment of business, with Pepsico USA coming second in terms of revenues and profits as well as worldwide sales and distribution. Both these companies have been famous for their innovative marketing and sales strategies and indulged in price and branding wars that have benefitted consumers as well as the whole industry. However in terms of branding and sales both Pepsi and Coca Cola have more than 200 brands each. They jointly dominate the cola drink market so it is likely that the few other competitors in this segment would consider it a threat. I think they would appeal under the Antitrust Laws and Monopoly Act and would have a good chance of being successful. So much as I would love Pepsi and Coca Cola to merge- there may be legal deterrents against making

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this a reality. But if it were possible, it would result in a virtual domination of the cola beverage market, as it would form the biggest firm of its kind in the world. The other possibility is to merge with a firm with complementary products, such as the Nestle Group. I would think that this merger stands a better chance of being successful legally. Nestle Fruit Juices, drinks, milk and yogurt products would likely be the more healthy complement to Coca Cola Corporation’s hot and cold cola and other beverages. Financing the Takeover and Reasons for this Choice As regards financing the merger or takeover, if it were possible for Pepsi and Coca Cola to merge, I would exchange Pepsi shares for Coca Cola- because the Coca Cola Company is a larger corporation in terms of assets, sales revenues, profit earnings, market capitalization and also enjoys a higher share price on the stock market. I would look to arrange the exchange price as the ratio of their share values on a given date, or analysts would be able to evolve a more complex formula depending on assets, liabilities, market share of products and sales. I would opt for a merger rather than a takeover. At present Coca Cola has a share value of $68.62 with over 6 million shares floated giving a market capitalization of $155.74 billion (Yahoo Finance Website, 2012). Pepsi has a share value of $63.14 with over 6 million shares floated giving a market capitalization of $98.81 billion (Yahoo Finance Website, 2012). Yahoo Finance gives Pepsi an enterprise value of $120.44 billion as of 20 Feb 2012, while it gives Coca Cola an enterprise value of $170.79 billion as of 22 Feb 2012 on its website statistics. There is much to be said for the business acumen of both managements, and I would prefer a healthy coexistence of the best group of people putting their heads together on both sides, rather than one being subservient to another and the resultant difficulties in managing the overall business.
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Summary

Finance Module 5 SLP Assignment Name of the Writer Name of the Institution Net Present Value, Mergers, and Acquisitions Introduction A business entity that wanted to expand would have a number of limitations depending on its legal form and ownership structure…
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