Question Tag: Corporate Strategy

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  • 5 Marks

AFM – May 2019 – L3 – Q3b – Valuation of acquisitions and mergers

Evaluate whether Ape should proceed with the merger by assessing the financial impact and synergy benefits.

Ape has 2,500 shares outstanding at GH¢10 per share. Bee has 1,250 shares outstanding at GH¢5 per share. Ape estimates that the value of synergistic benefit from acquiring Bee is GH¢500. Bee has indicated that it would accept a cash purchase offer of GH¢6.50 per share.

Required:
Identify whether Ape should proceed with the merger

Since the net loss from the acquisition is GH¢1,375, Ape should not proceed with the merger as it results in a financial loss despite the synergy benefits.

  • 8 Marks

AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discuss when takeovers make financial and economic sense and reasons why takeovers may fail to increase shareholder wealth.

Despite substantial evidence, drawn from different countries and different time periods, that suggests the wealth of shareholders in a bidding company is unlikely to be increased as a result of taking over another company, takeovers remain an important part of the business landscape.

Required:
i) Explain briefly when a takeover will make economic and financial sense.
(3 marks)

ii) Discuss briefly FIVE (5) reasons why a takeover may fail to deliver an expected increase in wealth for the bidding company’s shareholders.
(5 marks)

i) When a takeover makes economic and financial sense
A takeover makes economic and financial sense when it creates value through synergies. The value of the combined business must exceed the sum of the values of the individual businesses. This can be expressed as:

PV Combined business > PV Bidding business + PV Target business

This means that the takeover should generate benefits such as cost savings, revenue enhancement, or improved efficiency, which would not have been realized if the companies operated independently. The combined entity should deliver a higher net present value (NPV) or enhanced future cash flows, justifying the merger or acquisition.
(3 marks)

ii) Five reasons why a takeover may fail to deliver the expected increase in wealth for the bidding company’s shareholders

  1. Overpayment for the target company:
    Management of the bidding company may pay too much for the target company. Often, a premium is paid to convince shareholders of the target to sell their shares. This premium might not be justified by the future gains from the merger, leading to wealth transfer from the bidding company’s shareholders to the target’s shareholders.
  2. Hidden problems in the target company:
    Problems that were hidden or undiscovered during the due diligence process may emerge after the acquisition. These issues could be financial, operational, or legal, and they may erode the anticipated benefits from the takeover.
  3. Integration challenges:
    Integrating the operations, culture, and management of the two companies may prove difficult. Differences in organizational cultures, management styles, and systems can lead to inefficiencies and prevent the realization of expected synergies.
  4. Management complacency:
    After the takeover, management may become complacent, believing that the takeover itself guarantees success. Without continuous effort to integrate and improve operations, the anticipated benefits may not materialize, leading to underperformance.
  5. Errors in valuing the target company:
    Misjudgment in valuing the target company may lead to the bidding company overpaying for the acquisition. This often results from incorrect assumptions about future cash flows or failure to account for the risk associated with the acquisition.
  • 10 Marks

CSEG – Nov 2018 – L2 – Q5a – Marketing, operations, and HR perspectives

Explain how five human resource management functions can help accomplish organizational objectives.

The successful implementation of corporate strategy depends, in part, on effective management of human resources within an organization.

Required:

Explain FIVE (5) human resource management functions that can help accomplish organizational objectives. (10 marks)

Human Resource Management Functions:

  1. Hiring and Recruiting:
    • One of the primary functions of the human resources department is to oversee hiring and recruiting within an organization. The department actively recruits, screens, interviews, and hires qualified candidates for open positions. The department administers skills assessment and personality tests to match candidates with the right job within the company. The human resources department also develops employee handbooks that explain company policies and procedures to new hires. Effective recruitment ensures that the organization has the right talent to execute its strategy.
  2. Training and Development:
    • The human resources department handles the training and development of staff within an organization. It creates training programs and conducts training for new hires and existing employees. The human resources department also works in conjunction with department managers and supervisors to determine the training needs of employees. They are responsible for contracts with training providers and monitoring training budgets. Continuous learning and development ensure that employees’ skills and knowledge remain aligned with the company’s strategic goals.
  3. Handling Compensation:
    • The human resources department is responsible for various aspects of employee compensation. The department typically handles employee payroll and ensures employees are paid accurately and on time, with the correct deductions made. Human resources departments also manage compensation programs that include pensions and other fringe benefits offered by the employer. Proper compensation management motivates employees to perform at their best, contributing to the achievement of organizational objectives.
  4. Employee Benefits:
    • The human resources department manages all aspects of employee benefits, including health and dental insurance, long-term care or disability programs, as well as employee assistance and wellness programs. The department keeps track of employee absences and job-protected leave, such as family medical leave. Human resources department representatives ensure employees receive the proper disclosures regarding benefit eligibility or if benefits are no longer available because of a layoff or termination. Comprehensive benefits packages can enhance employee satisfaction and retention, which is critical for maintaining a stable workforce aligned with organizational goals.
  5. Employee Relations:
    • The human resources department handles employee relations matters within an organization. Employee relations involve employee participation in different aspects of organizational activities. The department maintains the relationship between employees and management by promoting communication and fairness within the company. The department also handles disputes between employees and management, as well as disputes between the company and labor unions or employee rights organizations. Positive employee relations help create a motivated and committed workforce, which is essential for the successful implementation of corporate strategies.
  • 8 Marks

BMIS – Nov 2016 – L1 – Q7a – Introduction to business strategy

Differentiate between corporate-level and functional-level strategies based on key activity, risk, decision type, and duration.

An organization’s strategic decisions are categorized into entity/corporate level strategies and functional level strategies. Indicate how the two differ based on the following:

i) Key activity/function (2 marks)
ii) Risks associated with their decisions (2 marks)
iii) Type of decisions (2 marks)
iv) Duration of their decisions (2 marks)

  • Key activity/function:
    • Corporate/Entity Level: The key function is to formulate decisions.
    • Functional Level: The key function or activity is to implement the decisions formulated at the corporate/entity level.
      (2 marks)
  • Risks associated with their decisions:
    • Corporate/Entity Level: The risks associated with decisions at this level are very high; errors can potentially collapse the entire organization.
    • Functional Level: The risks associated with decisions at this level are relatively low, and their impact is usually limited to the concerned department.
      (2 marks)
  • Type of decisions:
    • Corporate/Entity Level: The nature of decisions at this level affects the entire organization.
    • Functional Level: The decisions at this level typically affect only the specific department.
      (2 marks)
  • Duration of their decisions:
    • Corporate/Entity Level: Decisions at this level are mostly long-term.
    • Functional Level: Decisions at this level are mostly short-term.
      (2 marks)

Grand total: 8 marks

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