Problem:
Rumors about potential mergers and acquisitions are often a hot topic in the business press and there have been rumors that Google is considering acquiring Groupon.
As you know, mergers and acquisitions can potentially bring about great rewards but also can potentially bring great risks and pitfalls. For this assignment, do some research concerning the arguments both for and against such an acquisition from a financial perspective. Consider this from the point of view of whether or not such an acquisition would be a profitable undertaking that would add value to the shareholders of two corporations (Google and Groupon).
Please assist by answering the following questions:
1) Do you think Google's potential acquistion of Groupon would add value to the shareholders of both corporations? Why or why not?
2) Based on your analysis and findings, what would you recommend to the shareholders of Google and Groupon? Please explain your reasoning.
In your answers to the primary questions, please respond to following issues:
- The impact on Google shareholders
- The impact on Groupon shareholders
- The financial conditions of both corporations (do not forget to consider the new project proposed by Google in part I)
- Why might one combined Google/Groupon company be more profitable than if they remained separate companies? In general, what makes an acquisition successful?
- Potential pitfalls - might the combined entity actually be less profitable than either company operating independently? What are the risk factors with this potential acquisition?
- Describe and apply net present value (NPV) method to make capital budgeting decisions
- Identify success factors in mergers and acquisitions
- Explain and discuss financing options for financing mergers and acquisitions
- Apply principles of risk and valuation analysis to mergers and acquisitions