What caused Allied Colloids to become a takeover target?
As presented in the case study (Feller 1998), Cibas Specialty Chemicals Company had several strategic goals and objectives, that it wanted to achieve in the market place. Some of the strategic goals and objectives included growth and expansion in its business operations and improvement of the quality of the products and services that it was providing to its customers. In addition to that Ciba Specialty Company wanted to increase its profit returns in the market that could enable it increase the shareholders value for their investments in the company. Considering that Allied Colloids had a strong profit base in the market and it had sound strategic plans, it attracted Cibas Specialty Company. The major reason being Allied Colloids could be a good partner that could enable Cibas to achieve most of its strategic business plans in the market.
Cibas Specialty Company had discovered the benefits that they could derive from working as one business entity with Allied Colloid as they could enable them share the good reputation that they were holding in the marketplace. Allied Colloid was also in the business sectors that Cibas was interested in, so by acquiring Allied Colloid, Cibas could find it easy to carry business operations in those business sectors like water treatment among others (Feller 1998). On the other hand, Cibas bought Allied Colloids because of the competition that the company was posing for it in the business environment. This was one of the ways, which the company was using to eliminate the competition in the market. In carrying out an acquisition Cibas Specialty Company would be able to facilitate quick achievement of its strategic goals as it was likely to benefit from the synergies of working together (Feller 1998).
How did Ciba value the gains from the merger or acquisition?
As presented in the case study about Cibas, Ciba Specialty Company did not use only one method to value the benefits that would acquire from the acquisition. The company used a variety of methods in calculating the benefits of the acquisitions. Some of the method that was used includes the use of asset valuation method whereby Cibas Specialty Company calculated the value of the assets that it had acquired from the takeover by comparing the values with the market prices. The earnings per share of the activities of the company were assessed to determine the profitability of the various business activities of the company (Feller 1998).
As presented in the case study (Feller 1998), the historical values were also used for the valuation of long term assets that had been acquired for a long time like the machines and the buildings of the company. In order for the company to update its financial statements to look more realistic and also to comply with the accounting standards, the company used the future valuation technique; which encompassed the earning that the company y would be able to derive from the takeover target. In this case the economic profits of the company were calculated so as to determine the costs that could arise in investing in the acquisition. The profits that could be foregone would then be calculated so that informed decisions would be reached at in assessing the values that could arise in the acquisition.
Cibas Specialty Company was able to calculate the value of gains from the acquisition by determining the benefits that it could derive from the synergistic efforts in achieving its growth objectives and a high profitability status (Feller 1998).
Finally the other method that was used to value the acquisition is the discounted cash flow method in which different discounting factors were applied for calculating the net present value of the investment over a given period of time that Cibas Specialty Company had planned to make the investments (Feller 1998).
What effect did the acquisition have on Cibas’s balance sheet and performance?
As presented in the case study, Ciba Specialty Company was able to have an increase in its income from the various business operations. This was evidence from the synergy that the company had acquired by entering into an acquisition deal with Allied Colloid. The earning before tax increased tremendously despite the unstable economic conditions that were prevailing in the market during that time. These high figures in the income section were shown in the balance sheet as a good financial position for the company (Feller 1998).
As presented in the (Feller 1998) Cibas specialty company, when Cibas specialty company acquired Allied Colloid Company, the shareholders contributions as represented in the balance sheet and the other financial statements suffered a lot whereby the figures of those contributions reduced a. The reason for the reduction was because company used the shareholders finances to finance the costs of the acquisition (Feller 1998). In the cases where the company acquires a target company it will face the burden of paying for the benefits that it is acquiring from the target company. The costs that the firm will incur are called the acquisition premiums. In the case study Cibas Specialty Company made a write off of CHF one million that was associated with the coats and charges that it had incurred in the acquisition.
The income from the sales activities increased, as it was able to offer its products and services to a wide variety of customers. This was made position by the exploration of the markets, which were being operated by Allied Colloid. On the other hand, Cibas was able to increase its asset base because it was able to value the target company’s assets as its own assets, and thus included them in its financial statements (Feller 1998).
Who won? Who lost?
Initially, before Cibas Specialty Company (Feller 1998) had entered into an acquisition deal, it had many strategic goals and objectives, that it wanted to accomplish in its business operations in the marketplace. These goals could help it to deal with the competition that was emerging. Some of the goals involved the expansion of its business activities, which would help them create a strong supply chain, which would be profitable to the business. In addition to that Cibas Specialty Company had wanted to promote its production activities, by creating new ways in which the business would carry on its activities. Comparing Cibas Specialty Company with Allied Colloid, it also had good financial base in the market that it wanted to maintain for a long time which could enable it to continue benefiting from the positive profit returns in the market place (Feller 1998).
When the two companies entered into the acquisition deal, they were both able to achieve their strategic goals in a more easy way. The reason behind the achievement of the goals and objectives is the benefits that result from the synergies that are created when the companies work together by combining their efforts and goals (Feller 1998).
On the other hand considering this case (Feller 1998), the targeted company (Allied Colloid) lost control over the operations of its business activities. The control the company had over its profitable business operations had been taken over by the acquirer. In that manner the targeted company losses its profit potential to the acquirer that benefit from all the investments that the company had made for its business operations. The acquirer also lost in this case by having to incur the high costs of sustaining a successful acquisition that could enable it to reduce the competition in the market place. Making a successful, acquisition usually goes with a high cost that is paid in terms of the premiums.
The acquiring company (Cibas Specialty Company) lost to some extent in the costs that it incurred in making the acquisition become successful. Some of the costs it had to incur were those that involved making different kinds of compensation packages that are necessary in any acquisition that can enable the acquisition to be considered as a legal act in the business environment (Feller 1998). Most of the acquisition deals tend to become expenses for the firms that are planning to carry them out. This mostly depends on the costs that the targeted firm will set to pay to the acquirer so as to surrender its assets and management of their company. Such costs can be exaggerated as the target company cannot be able to accept a let go deal which will compromise with its business position in the market.
Post script
Considering the above analysis (Feller 1998), the motives of the any type of merger and acquisition decisions, that various companies take are used to determine the legality of such actions. In situations where the companies take actions to acquire their competitors in the market through a negotiated agreement such action are considered to be legal as they do not result in negative consequences to all the parties that are involved. Hostile takeovers affect the image and reputation of the acquiring form as it tries to build its business base for its operations. Such an act will affect the supply chain of then company’s activities as the customers are likely to have a negative attitude towards the company’s products and services that will affect its profitability and growth potential in the market place.
As reported in the UK BUSINESS PARK, the results of the acquisition between Allied Colloid Company and Cibas Specialty Company lead to the two companies combing their efforts to carry out common objectives for the company. This was achieved more easily than before they had started working together. The reasons for such high performance results were from the both companies expanding their operations to areas that they could not be able to access in the past. In addition to that, the resources of the two companies especially the human resources, technology, and knowledge and operating capacities were transferred to a common pool. The pool was used for the achievement of the goals of the merged entity.
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References
UK BUSINESS PARK. Allied Colloids
Peter A. Keller (1998). Ciba specialty chemicals Inc: Managing the spin-off.
