Answer 1:
a) Tax consideration: In present scenario, ICI is a subsidiary of a stable and established firm and is in a good state with sufficient revenue generation. It has current debt ratio of 40%. ICI would want to leverage the low debt ratio of Nero for further growth and expansion. This merger can also be used as a way of tax benefits for excess cash flows. Acquisition of a loss making firm can be used to save tax on the acquiring firm’s income. b) Diversification: Although diversification helps in reducing the risk to a firm’s income and is normally beneficial to a firm and its’ shareholders in the long run, it cannot be a factor in this case as ICI and Nero both operate in the same industry.
But shareholders can reduce their own risk by diversifying their own portfolio rather than a firm doing it for them if the shareholder genuinely wants to reduce risk in his portfolio.
c) Control: In the current scenario Nero’s management has only 30% control over the company in form of shares. If the merger takes place ICI will be taking control over Nero’s management. But ICI is also willing to retain the management of Nero if they agree to the merger. Although ICI may have less control in …show more content…
If both firms have certain individual strengths which could be leveraged when combined then Synergy forms the basis of the deal. ICI has restaurants serving Indian and Chinese Cuisines while Nero serves in Italian cuisine and the biggest advantage of Nero is its’ brew pub atmosphere, which upwardly influences prices of food and hence profits for the firm. If we look into the spread of restaurant chains, ICI is present over 200 locations whereas Nero has 8 of its restaurants in Chicago. From this case we come to understand that the as both have fared well in competing with competitors, combined benefits can help them to achieve higher
a) Tax consideration: In present scenario, ICI is a subsidiary of a stable and established firm and is in a good state with sufficient revenue generation. It has current debt ratio of 40%. ICI would want to leverage the low debt ratio of Nero for further growth and expansion. This merger can also be used as a way of tax benefits for excess cash flows. Acquisition of a loss making firm can be used to save tax on the acquiring firm’s income. b) Diversification: Although diversification helps in reducing the risk to a firm’s income and is normally beneficial to a firm and its’ shareholders in the long run, it cannot be a factor in this case as ICI and Nero both operate in the same industry.
But shareholders can reduce their own risk by diversifying their own portfolio rather than a firm doing it for them if the shareholder genuinely wants to reduce risk in his portfolio.
c) Control: In the current scenario Nero’s management has only 30% control over the company in form of shares. If the merger takes place ICI will be taking control over Nero’s management. But ICI is also willing to retain the management of Nero if they agree to the merger. Although ICI may have less control in …show more content…
If both firms have certain individual strengths which could be leveraged when combined then Synergy forms the basis of the deal. ICI has restaurants serving Indian and Chinese Cuisines while Nero serves in Italian cuisine and the biggest advantage of Nero is its’ brew pub atmosphere, which upwardly influences prices of food and hence profits for the firm. If we look into the spread of restaurant chains, ICI is present over 200 locations whereas Nero has 8 of its restaurants in Chicago. From this case we come to understand that the as both have fared well in competing with competitors, combined benefits can help them to achieve higher