Introduction
The merger between companies is the process of bringing together two companies to be one entity. The two companies are expected to operate in their own specialized businesses which are less similar; hence by merging they establish a strong bond in their service delivery. Company merge so as to gain from the broaden market structure and the well established brands which will eventually increase the company’s stakes in the market. The main objective therefore for merging is to attain a substantial market share. Companies also do come together so as to overcome the stiff competition in the market and be able to minimize the tax burden. Merging also enables the company to overcome the losses which they have been getting by utilizing the competence of the other company and their profits (Weston & Weaver, 2004).
Strategy
The case study involves Xerox Company acquiring the ACS Company for a value of $6.4 billion. This has been passed by the shareholders of the two companies. The merger has brought together great number of employees of over one hundred and thirty thousand who plans to utilize technology innovation massively in improving their output and generally increasing the company’s revenue. The merger is beneficial to both companies in their respective areas of operations. Xerox’s will be able to provide technology innovation to the ACS in it services delivery hence increasing the sales revenue. The merger is of a long term nature since the two companies benefit from one another (Arnold, 2008).
The ACS Company will run itself independently as a division of Xerox hence the activities in ACS will continue as usual. Their strategies are not altered but are increased by benefiting from a company which uses the latest technology in its operations. Xerox Company spends a lot of money annually from its revenue in research hence the acquisition will benefits the ACS Company.
The customers of ACS will not be lost since their provisions will be boosted by the union of the two companies in the technology which improves the efficiency of the company. The company’s team will not be changed though there might be only minimal employee layoffs in the departments which are the same. The ACS Company will benefit a lot from the research of the Xerox in the technological innovation which is very important in eliminating competition which is very stiff currently in the market.
The technology of Xerox will be used by ACS to build a new image of the license plates other than depending on the E-Z collection system. These are long term strategies on the ACS Company since there will a complete change on the company’s brands and the image which will be of great benefit to the company. The combined company will have to upgrade their desktop services to a new one which will support all the operations.
These are the normally managed service of the ACS and the those for printing of the Xerox Company. This is very convincing option which accelerates the functions of the new company. The technology which Xerox has established is very useful to ACS especially in the provision of health care and the services to the government and in all the sectors which requires the business process management. Xerox also will benefit from the outsourcing facilities of the ACS in business process which enables Xerox to provide complete human resources processes through outsourcing not just offering it through the front end.
There is increased market share of the new company since the products will be offered across the customers of both the Xerox and the ACS. Their markets are different hence the new company will be able to establish usefulness of the new customers hence expanding their territories. For instance, Xerox gets over 50 percent of its revenue from outside the United States of America while ACS area of operations is in the North America of over 90 percent of its operations. Hence this merger is of great benefit to ACS which will go along way in the future without being sized from it in the new markets of United States of America. This is of great importance to the credibility of the ACS in the whole world. ACS will be able to increase its chances of competition among the various international outsourcers.
Regulatory implications
The shareholders of both companies were required to vote for the merger to be successful. The board of directors of each company had to convince the shareholders to vote in support of the merger. The shareholders are the key lawful persons who have to approve any changes in the management of their equities hence in merger, they are the main key determinants after all the pros and cons of the merger have been analyzed by the management. The statements of proxy had to be sent to the shareholders of both the companies which lead to the establishment of the world’s leading company in the management of the business processes and in increasing its market share. This is the requirements for a merger. There is also the requirement of the approval of the domestic and foreign investors for the merger to be complete (Peng, 2008).
The two companies also had to satisfy the policies required by Securities and Exchanges commission. There are also Hart Scott Rodino requirements which the two companies had to meet before they complete the acquisition. Xerox had to meet the obligation of the making payments of $2 billion for the transactions of the capital market, with the proceeds being utilized in the process of the acquiring ACS Company. Before they completed the acquisition, they had to comply with the regulations of issues of litigation. The companies are also expected to show the forward looking statements which show the position of the company as at the present and what the management speculates that it may alter substantially the expected outcome such as the financial crisis in the country, or any lawful act by the competitors and the regulatory party which may affects the company’s revenues and expenditures (Galpin & Herndon, 2007).
Company valuations
Valuation of the company is very important before any merger or acquisition is to take place. Company’s performances have to be measured so as to find out the strength of the companies management and skills of the employees. This also will be used to estimate the productivity of the company besides the long term benefits and life of the company. Investors use the valuations of the company so as to know whether the company is in a good position to deliver as per their expectations (Hitchner, 2003).
The shareholders’ equity will be well used in the company through the indications of the valuations. The valuation is very important and hence the Xerox and ACS had to be valued before their merger. Valuation before a merger is important for the company to determine the strength of the each other and to factor in any liabilities which are expected. The assets accumulated by the company are used to value the company. This is important in identifying the true cost of the companies worth or assets it has acquired.
The company valuation of ACS is justified since Xerox based the assets accumulated by the company and the future expected growth in determining the cost of acquisition. ACS is valued at $6.5 billion in its assets accumulation with annual growth of 6% on its revenue. Merger will enhance the profitability with an expectation of increase in the percentage of the annual growth of revenue to 15% after three years of acquisition. The merger management expects that the acquisition is worth taking as all the stakeholders of the two companies will be able to increase their equities annually (Evans & Bishop, 2001).
The market valuation of ACS was arrived at using the closing share value of the company at the New York stock exchanges. The price per share as at the closing bell was valued at $63.11 for every share of the company by Xerox yet the exact market price share as at the stock exchange is $47.5 per every share. This is a good amount of the company which has encouraged the acquisition process as the value of the share is good and the shareholders have been happy with the company performance hence any increase in their share value is of great benefit. The market value of all the shares of the company comes to $6.5 billion which is a good indication of the company’s worth and control in the market (Evensky & Katz, 2004).
The expectation of the growth of the business outsourcing is at five percent annually. The business outsourcing has been speculated to be close to $150b and its already expanded market share will enable other contracts to be signed such as the state, federal and local government, among others which are estimated to be 1700 this year will increase the business of the company. The valuation of the company is expected to increase the annual revenue three times the current level of Xerox up to $10b up from $3.5b from all the services it offers.
This is a boost to the company as all its market share will grow tremendously. This will enable the company’s acquisition be viewed with positive intent as the valuation can then be justified. The justification of the valuation as it is now is very accurate and the speculation is measurable which means that the merger has been done with facts which indicate the true and fair value of the company stocks and assets (DePamphilis, 2007).
Financing
Xerox Company will acquire the ACS Company by paying for the total acquisition price in cash and use of its stock transactions which has been estimated to be worth $63.11 for every share which comes to a total of $6.4 billion. $4.935 will be paid in form of the shares of Xerox Company for every share they own in ACS to the shareholders of ACS. $18.6 for every share in ACS will be paid in cash by the Xerox Company so as to make up all the total cost of acquisition. The financing of the acquisition of ACS is within the limits of the company for expansion in its market share and the growth in the company operations (Moyer, et al., 2009).
The acquisition will also enables the debt of ACS of $2 billion being taken over by the Xerox Company. Xerox Company will also give $300M to the shareholders of ACS Company of class B part of its preferred stocks which are easily changed. This is the amount which can make Xerox company improve its productivity and makes its annual revenue be increased. The market share of the company plays a major role in this whole process of acquisition (Brealey, 2007).
If under any circumstance the deal is not closed, due to either company withdrawing, there is a penalty or charges to be paid by the defaulting company. In this case, if Xerox withdrew from the closing of the deal, it had to pay ACS an amount totaling $235M. If the ACS Company withdrew from the deal, they had to make payments to Xerox of an amount totaling $194M (Gitman & McDaniel, 2008).
Defense tactics
The tactics employed by ACS on the acquisition process were sensible ones. The company board of management sees an opportunity worth taking irrespective of the cost and independence. The company when acquired benefits a lot from the merger and hence the issues relating to declining the offer has not been raised. The company is well established and there is mutual benefits being achieved in the merger hence the raising of negative feelings or acts of suspicions by the ACS company (Bruner, 2004).
The two companies have agreed on how the management will be executed with the ACS maintaining its all departments but similar ones will be merged with those of Xerox. The acquisition is a window of excellent opportunities such as increase in market share, improvement of its brands of the company with the attainment of the new technology which is being utilized in the Xerox Company. The boards of directors of ACS have expressed willingness of the deal to be fair in price and strategies which are being applied in merging and running the operations of the company (Johnson, et al., 2008).
The management of the company will have to run the functions of the company as a division of Xerox Company hence absolute business operations are not affected. This is an opportunity for the company to maximize it operations with lots of efficiency from all its operations and the company will have to double its profits and market share. The employees of the company are due to increase as a result of the acquisition hence many domestic and international customers will be reached in all the combined company operations (Pratt & Niculita, 2007).
The management had not indicated signs of resistance to the acquisition process but they had to negotiate a good price which motivated the shareholders that the deal is good. The management had to convince the shareholders of the opportunity that it is good and important for them to continue in closing the deal. The management actions indicate that they are willing and happy with the deal hence the management had to be sensible in all its actions and operate as the laws governing the merger processes.
Implementation
The process of implementing the acquisition is not difficult. There is ease of integrating the two companies into one combined company which operates as a recognized entity. The functions of each company are different and hence integration will enable the two companies establish a well paying relationship. There are no sell offs being expected from the merger hence all the units of each company are to remain and all the operations of the company have to continue.
The services they offer are of close relationship hence some of them are of great concern. Integrating them to be one is very easy since they already have well established functions which are of great benefit to one another and to the customers. For example the back-front office communications and services of business process are enabled through this merger (Kirchner, 2009).
Risk
There are risks which are involved in this merger. The shareholders’ value may have to be affected though it can be observed that the risk is worth it. The main risk is that of the capital markets where the shares of the company will have to drop. The Xerox company shares value dropped when the announcement of the deal was made. The value also of the company declined from $63.11 to 53.56 for every share (Pereiro, 2002).
There is risk of losing credibility in its own management from the customers who may view the acquisition to be as a result of lack of adequate skills and resources to continue in business. The merger also is face with the credit risk in which the combined company debt will increase like that of Xerox where the debt default swaps increased by ten percent to some point’s equivalent to 1.78 up from 0.1 points. This shows that the credit management will have to increase tremendously.
Conclusion
The merger of Xerox and ACS is good and advantageous to the two companies in their service delivery of their business operations. The two companies will be able to benefit from the highly skilled employees and be exposed to an appropriately good number of employees. The combined company will also be able to control a wider market share than before hence the chances of increasing the company revenues are enhanced. There is also ability of the two companies to utilize the latest technology at all time which fits their respective areas of operations hence the customers are always satisfied with all the efficient and effective services they get. There is also the benefits associated with the economies of scales such as bulk purchases, security services etc.
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