Mergers combined rather than being a single organization.

Mergers
are normally portrayed as the union of two associations into a solitary
associations though acquisitions are described as buying of one association
from another where the purchaser or acquirer is in control (Borys and Jemison,
1989).

There
are three basic type of merges, namely horizontal, vertical and conglomerate. Horizontal
merging is defined as a merge of organizations in the same industry more often
the competitors, vertical merger is defined as the merging of two organizations
which perform at different production stages in the value chain and
conglomerate merger is when an organization merges with an organization in a
different industry.  In this particular
scenario the type of merger is a horizontal one.

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There
are many justifications to the M&A activity. Acquisitions can only be
justified if the shareholder wealth of acquirer is increased. According to
Watson and Head (2013), combination of two organizations should increase in the
shareholder wealth because their worth increases when combined rather than
being a single organization. This will further enable to gain a higher growth
in Santander’s market share because Santander now owns all the shares of
Popular.

An
analyst presentation made by Santander for the acquisition of Bank Popular
indicates what Santander plans to achieve with the M of Popular. M
of Santander and Popular will create a synergistic value.

 

They
have planned to leverage their economies of scale, optimize the combined
network of branches, HQ optimization and conduct their operations in one single
IT platform. By 2020 Santander targets to have a EUR c.500m before tax c.33% of
Popular or c.10% of the combined 2017 cost base of Spain and Portugal.

Going
further beyond the synergistic value Santander would also gain a strategic
value by this M activity. Santander aims to build up a strong strategic
rationale which will make Santander the leader in commercial and retail banking
after the acquisition of Popular.

Due
diligence s one of the main challenge that merge and acquisition process has to
face. Due diligence is the evaluation of any associated risks therefore
valuation is considered as one of the main component in due diligence. Thus
focusing on the issues of M activity it is important that a proper
valuation has been carried out by Santander based on the acquisition of Popular
bank.

An
appropriate valuation will aid in determining how the business in Popular bank
looks like. There are several valuation methods that can be used such as
discounted cash flow (DCF), free cash flow (FCF), asset valuation method. The
most commonly used valuation method is the discounted cash flow method.

DCF is an income based valuation method. By using
discounted cash flow the present value is estimated. By using this present
value the investment potential is evaluated. Compared to the current cost of
the investment if the value obtained by the DCF is higher it is considered as a
good opportunity. The company’s assets are valued using the asset based
valuation method. The most commonly used method is assessing the book values
which can be found in the company’s financial statement.

Concentrating on the methods of financing the
acquisition there are several methods such as cash offers, share to share offers.
The company which does the purchasing usually wants to minimize the amount
which is paid to the shareholders of the target company, thus not paying more
than the pre-merger value. In contrast the shareholders of the target company
wants to maximize the gain by not accepting anything below the pre-merger
value.

 

 

The policy in which the company decides how much dividends they
will pay to their shareholders is known as the dividend policy. There are
different types of dividend policies such as the residual dividend policy which
uses the internally generated equity in funding the new projects. Fixed
percentage payout ratio policy where the company will pay dividends as a fixed
percentage of the annual profit.

Shareholder
value is defined as the return on the invested capital. If this was created
from a long time then a quite larger dividends can be paid to the shareholders.
Therefore with the M activity Santander aims to achieve a shareholder value creation: targeting 13-14%
RoI (Return on Investment) by the year 2020.

 Mergers
are normally portrayed as the union of two associations into a solitary
associations though acquisitions are described as buying of one association
from another where the purchaser or acquirer is in control (Borys and Jemison,
1989).

There
are three basic type of merges, namely horizontal, vertical and conglomerate. Horizontal
merging is defined as a merge of organizations in the same industry more often
the competitors, vertical merger is defined as the merging of two organizations
which perform at different production stages in the value chain and
conglomerate merger is when an organization merges with an organization in a
different industry.  In this particular
scenario the type of merger is a horizontal one.

There
are many justifications to the M activity. Acquisitions can only be
justified if the shareholder wealth of acquirer is increased. According to
Watson and Head (2013), combination of two organizations should increase in the
shareholder wealth because their worth increases when combined rather than
being a single organization. This will further enable to gain a higher growth
in Santander’s market share because Santander now owns all the shares of
Popular.

An
analyst presentation made by Santander for the acquisition of Bank Popular
indicates what Santander plans to achieve with the M&A of Popular. M&A
of Santander and Popular will create a synergistic value.

 

They
have planned to leverage their economies of scale, optimize the combined
network of branches, HQ optimization and conduct their operations in one single
IT platform. By 2020 Santander targets to have a EUR c.500m before tax c.33% of
Popular or c.10% of the combined 2017 cost base of Spain and Portugal.

Going
further beyond the synergistic value Santander would also gain a strategic
value by this M&A activity. Santander aims to build up a strong strategic
rationale which will make Santander the leader in commercial and retail banking
after the acquisition of Popular.

Due
diligence s one of the main challenge that merge and acquisition process has to
face. Due diligence is the evaluation of any associated risks therefore
valuation is considered as one of the main component in due diligence. Thus
focusing on the issues of M&A activity it is important that a proper
valuation has been carried out by Santander based on the acquisition of Popular
bank.

An
appropriate valuation will aid in determining how the business in Popular bank
looks like. There are several valuation methods that can be used such as
discounted cash flow (DCF), free cash flow (FCF), asset valuation method. The
most commonly used valuation method is the discounted cash flow method.

DCF is an income based valuation method. By using
discounted cash flow the present value is estimated. By using this present
value the investment potential is evaluated. Compared to the current cost of
the investment if the value obtained by the DCF is higher it is considered as a
good opportunity. The company’s assets are valued using the asset based
valuation method. The most commonly used method is assessing the book values
which can be found in the company’s financial statement.

Concentrating on the methods of financing the
acquisition there are several methods such as cash offers, share to share offers.
The company which does the purchasing usually wants to minimize the amount
which is paid to the shareholders of the target company, thus not paying more
than the pre-merger value. In contrast the shareholders of the target company
wants to maximize the gain by not accepting anything below the pre-merger
value.

 

 

The policy in which the company decides how much dividends they
will pay to their shareholders is known as the dividend policy. There are
different types of dividend policies such as the residual dividend policy which
uses the internally generated equity in funding the new projects. Fixed
percentage payout ratio policy where the company will pay dividends as a fixed
percentage of the annual profit.

Shareholder
value is defined as the return on the invested capital. If this was created
from a long time then a quite larger dividends can be paid to the shareholders.
Therefore with the M&A activity Santander aims to achieve a shareholder value creation: targeting 13-14%
RoI (Return on Investment) by the year 2020.

 

 

 

Mergers
are normally portrayed as the union of two associations into a solitary
associations though acquisitions are described as buying of one association
from another where the purchaser or acquirer is in control (Borys and Jemison,
1989).There
are three basic type of merges, namely horizontal, vertical and conglomerate. Horizontal
merging is defined as a merge of organizations in the same industry more often
the competitors, vertical merger is defined as the merging of two organizations
which perform at different production stages in the value chain and
conglomerate merger is when an organization merges with an organization in a
different industry.  In this particular
scenario the type of merger is a horizontal one.There
are many justifications to the M&A activity. Acquisitions can only be
justified if the shareholder wealth of acquirer is increased. According to
Watson and Head (2013), combination of two organizations should increase in the
shareholder wealth because their worth increases when combined rather than
being a single organization. This will further enable to gain a higher growth
in Santander’s market share because Santander now owns all the shares of
Popular. An
analyst presentation made by Santander for the acquisition of Bank Popular
indicates what Santander plans to achieve with the M of Popular. M
of Santander and Popular will create a synergistic value. They
have planned to leverage their economies of scale, optimize the combined
network of branches, HQ optimization and conduct their operations in one single
IT platform. By 2020 Santander targets to have a EUR c.500m before tax c.33% of
Popular or c.10% of the combined 2017 cost base of Spain and Portugal.Going
further beyond the synergistic value Santander would also gain a strategic
value by this M activity. Santander aims to build up a strong strategic
rationale which will make Santander the leader in commercial and retail banking
after the acquisition of Popular.Due
diligence s one of the main challenge that merge and acquisition process has to
face. Due diligence is the evaluation of any associated risks therefore
valuation is considered as one of the main component in due diligence. Thus
focusing on the issues of M activity it is important that a proper
valuation has been carried out by Santander based on the acquisition of Popular
bank.An
appropriate valuation will aid in determining how the business in Popular bank
looks like. There are several valuation methods that can be used such as
discounted cash flow (DCF), free cash flow (FCF), asset valuation method. The
most commonly used valuation method is the discounted cash flow method. DCF is an income based valuation method. By using
discounted cash flow the present value is estimated. By using this present
value the investment potential is evaluated. Compared to the current cost of
the investment if the value obtained by the DCF is higher it is considered as a
good opportunity. The company’s assets are valued using the asset based
valuation method. The most commonly used method is assessing the book values
which can be found in the company’s financial statement. Concentrating on the methods of financing the
acquisition there are several methods such as cash offers, share to share offers.
The company which does the purchasing usually wants to minimize the amount
which is paid to the shareholders of the target company, thus not paying more
than the pre-merger value. In contrast the shareholders of the target company
wants to maximize the gain by not accepting anything below the pre-merger
value.  
The policy in which the company decides how much dividends they
will pay to their shareholders is known as the dividend policy. There are
different types of dividend policies such as the residual dividend policy which
uses the internally generated equity in funding the new projects. Fixed
percentage payout ratio policy where the company will pay dividends as a fixed
percentage of the annual profit. Shareholder
value is defined as the return on the invested capital. If this was created
from a long time then a quite larger dividends can be paid to the shareholders.
Therefore with the M activity Santander aims to achieve a shareholder value creation: targeting 13-14%
RoI (Return on Investment) by the year 2020.   

 

 

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