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¶ … merger of Time with warner is economically very attractive this is contributed by high value enhancement opportunities. This value enhancement opportunity reveals clearly the existence of a merger between Time with Warner. Motives present included:
How attractive is the merger of Time with Warner? What are the value enhancement opportunities? The Time and Warner are two firms that have complementary resources whereby each has what the other needs. Warner has a large amount of content in their warner brother's subsidiary and Time on the other hand has a strong position in cable television franchise. Time and Warner benefit from their complementary resources.
Existence of horizontal merger. This existence leads to economies of scale.it represents combination of two firms in the same line of business (Allen, 2008, p.68).Time and warner are in the same line of business hence this can be considered as horizontal. The prime advantage of this is that there is sharing of central services such as office management and accounting, financial control, executive development and top level management consolidating operations hence elimination of redundant costs.
Vertical merger .this involves companies at different stages of production. Vertical mergers seek economies of scale in vertical integration this is gained by spreading fixed costs over a large volume of production. In the media and entertainment business of the future, the successful company player will own the copyrights to creative products as well as avenues of distributions.
2. What do you think of the proposed exchange ratio of 0.465 per Warner share? How much synergy is needed to make the merger attractive?
The proposed exchange ratio of 0.465 is very attractive for Warner shareholders, from calculations it reveals that there is a realization of $515 million more than their original value of investment .For Times old shares it is opposite that is unattractive since they have to suffer the loss of $515 million.
Illustration:
$8.695billion-$8.18billion=$515million.
Time Inc.'s and Warner revised their deals as a realization that the stakeholders would not support their merger due to the paramount raising the cash bid. They had no obligation to respond to anything like paramount offer, their lawyers point out defensive actions and combination of each business board meeting.
3. What are the…
REFERENCE
Allen, (2008) corporate finance, p.68.
Dingman Michael, (2011) paramount vs. Time, p.360.
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