Economics Homework Help. Stratford University Capital Expenditure Decisions Discussion
Discussion Board – Capital Expenditure Decisions
Mergers and acquisitions are capital budgeting techniques. This technique is a managerial expansion decision to increase assets drawing a cash benefit. Research a most recent merger or acquisition and discuss the firm (merger – stable firm / acquisition – purchasing firm) expected cash benefit. Pretend you are the owner; would you make the same decision? Why or Why Not?
Reply 1
There is a very competitive and dynamic corporate environment in which companies work at present. To keep going to be effective and successful, companies must broaden their activities, markets and utilize different methods for their growth (Jallow et al., 2017). However, for firms to develop and operate throughout the globe, they need to examine their alternatives and pick tactics to reach those aims. Undermining the objective of this organization might lead to a growth failure if the correct method is not selected.
Kraft Heinz is a US food corporation that combines power goods from Heinz, Pittsburgh, and Chicago, Illinois. Business Kraft Heinz has its headquarters in Illinois. It is North America’s third-biggest food beverages corporation and the 5th biggest globally, with a yearly 2019 turnover of $25.0 billion (Lawrie, 2019). In 2015, the firm’s boards, investors, and governing bodies decided to merge the two companies. Kraft Heinz recorded a profit of $11.0 billion now for 2017, with a yearly turnover of $26.2 billion.
If I were the owner, I would have done the same thing. It was a wise choice to combine with Kraft food since Heinz faced deficits, and both contributed to the business’s market growth. In the last quarter of 2015, Heinz reported net losses of $164 million. At the same time a year earlier, it contrasts to a net profit of $127. In addition to an escalation of marketing costs in North America, the corporation stated that the exchange conversion values influenced its earnings in all sectors. But on the other side, Kraft recorded a second-quarter net revenue of $551 million, compared to the previous 2014 revenue of $482 million (Trefis Team, 2015). The quarter’s revenues fell marginally from 4.7 billion dollars the last year, at 4.5 billion dollars.
REPLY 2
I have been following AMD for almost a year now. Moreover, one of the most interesting news that came in late October of 2020 was that AMD was announcing the acquisition of Xilinx in a $35 billion all-stock deal (Carey, 2020). Before I go on details about how that could be beneficial for both companies,
Advanced Micro Device, Inc., better known as AMD, is an American company that has made a name for itself for delivering good value for the money in the CPU and GPU market for different equipment like computers, servers, and gaming consoles, or even automobiles. Xilinx is also an American technology company, and they are primarily a supplier of programmable logic devices. They are the field-programmable gate array (AMD to acquire Xilinx, creating the industry’s high performance computing leader, 2020).
Even though the terms mergers and acquisitions (M & A) are used interchangeably, they differ in meaning, wherein acquisition is when a company purchases another outright. A merger is a combination of two firms, forming a new legal entity under one corporate name. This is a good decision for AMD, which would help expand AMD’s rapidly growing data center business. With Xilinx being the number one provider of adaptive computing solutions, it would increase AMD’s Total Addressable Market (TAM) to $110 billion (AMD to acquire Xilinx, creating the industry’s high performance computing leader, 2020). The acquisition is adding significant value to the company as well as to the shareholders.
For Xilinx, it seems like a good deal as well since the valuation of the company has been done fairly. However, AMD does not intend to interfere with the operations other than just corporate restructure and giving Xilinx access to their resources (Harroch et al., 2018). Xilinx CEO Victor Peng will be the president and be responsible for the Xilinx business and strategic growth initiatives when the companies are combined in 2021 (Carey, 2020).
If I were the owner or the CEO of the company, I would also have been excited by the acquisition, given that all the promises by AMD were kept. Not only would I still be the president of the Xilinx business and be responsible for any strategic growth, but it would also give the people working for Xilinx an opportunity to tap into the massive international resources of AMD.
