Trenton Transmission Systems proposed merger with Roxburgh Inc Harvard Case Solution & Analysis

           Trenton Transmission Systems proposed                                          merger with Roxburgh Inc Case Solution

Proposed merger of TTS

INTRODUCTION

Board of Roxburgh Inc., a supplier of telephone transmission systems is planning to acquire the Trenton Transmission Systems (TTS) Inc. TTS has the technology and complex technical knowledge that Roxburgh needs and which will save $12.6million if they buy TTS instead of getting into research and development.

Synergies

Synergies can be defined as the extra value that can be created from the mergers and acquisitions. With an assumption that the buyer has to pay a reasonable price for the takeover target, no such value has been created at that point. The total synergy,which is the difference between present value of future cash flows from current and future(after acquisition), is $356million approximately. (FARRELL, n.d)
We can differentiate synergies into cost synergy and revenue synergy.

Cost synergies

Cost synergy represents the cost that is reduced due to the consolidation of the operations resulted by acquisition. Both the companies have benefit by cutting their cost through synergy of merger(Balmaceda, ‎2004).

Decrease in overheads

According to the estimates made by the management of the company, it is anticipated that the company will get its over head cost reduced by $4.3 million per year. This cost benefit will be distributed equally by both companies, thus increasing the operating efficiency of the company as well as better cash flows. The profit figures will also increase.

Economies of scale

If the merger takes place, then there will be 8% increase in the sales of the products of the TTS Company.This will help reduce the cost since the cost will be bear by the more number of units produced. This will helps in achievement of the economies of scale.
As sales increase, then there will also be increment on the manufacturing cost but overall the cost will be cover by the sales of more products, thus decreasing per unit cost.The profit margins as can be seen below:

Before

increase after 8% increase
2017 2017
84800 91296
43600 47024
11600 11600
17600 15450
12000 17222

There is an increase in profit by $5222m; this is achieved through synergy of being merged.

Eliminated cost

Roxburgh Inc. can save the cost of doing research expenditure and then going into development cost of the technology that it has anticipated at $12.6m. This extra cost is avoided and thus, it can invest on other opportunities or invested to earn return.
Size of the organization and powers

After acquisition there will be acquisition of both the companies in terms of all its assets and liabilities and other resources. This will result in growth of the organization as well and consolidated operations. There will be more competencies on the part of the staff mainly technical staff because the merger of both the companies’technical workforce creates synergy in doing work through combine decisions and working practices.

The company can have the bargaining power over the supplier of its resources since due to increased size,it can negotiate with the supplier and can buy in more bulk quantity.

Revenue synergies

Competition

Through merger both the companies can combine their competitiveness and will now compete effectively on the market with competitors. With reduced costs, they can offer products at lower prices as compared to the competitor’s price.................

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