Mergers and Acquisitions is an opportunity for investment in different countries. There are many reasons behind such as competitive advantage, economics of scale, increase product portfolio and market entry. Also companies can gain synergy through combined of two entities. If the particular company is cannot create that synergy because they have some kind of value. But other company have other kind of knowledge. Therefore combined entity creates value greater than the separate entities.
In the recent news Alpha Natural resources and Massey energy agree to $8.5 billion combination. This is creating a premier coal operator in the US and a global leader in metallurgical coal supply. Alpha Natural Resources is one of the America’s premier goal suppliers with coal production capacity of greater than 90 million tons a year. The Massey Energy company is the largest coal producer in central Appalachia.
In this merger activity the Massey Energy company share holders received 1.025 shares of Alpha common stock at the closing share price value of $69.33 as at 28th January 2011 and $10 in cash for each share of Massey common stock. This represents that the Massey Energy received 21% premium of their current share price.
After the mergers the shareholders of Alpha owned approximately 54% and Massey owned 46% of the combined entity. Therefore the both company shareholders will gain on the advantage of industry leader in the robust production portfolio. However it has the scale to capitalize for further growth opportunities in global environment.
As predicted by the Alpha’s chief executive officer, Mr. Crutchfield, we have a proven history of successful integration inception in 2002. And he further stated we will build strong track record through strategic growth, this is not a just combination of assets but it focus on people, environment and community in the future.
In this transformational deal of merger has created shareholder value that is evidence from the above deal in the short run. In the future, can create the value or destroy the value?
I like the case you've picked out, on the surface it sounds liek a great deal, with them both being such large coal suppliers.
ReplyDeleteSo are you saying the short term increase in the share prices of both companies have given a clear example of mergers being beneficial to shareholders?
You say short term, so, do you think in the future there may be problems with integration of two such large companies? Eventhough int he same industry, do you think there may be clashes between different managers? What other factors do you think would make this merger less beneficial to shareholders?