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1. Describe the political, cultural and change management perspective on

integration.

Ans.

The value chains of the acquirer and the acquired, need to be integrated in order to

achieve the value creation objectives of the acquirer. This integration process has

three dimensions: the technical, political and cultural. The technical integration is

similar to the capability transfer discussed above. The integration of social interaction

and political relationships represents the informal processes and systems which

influence peoples ability and motivation to perform. At the time of integration, the

acquirer should have regards to these political relationships, if acquired employees are

not to feel unfairly treated.

An important aspect of integration is the cultural integration of the acquiring and

acquired firms. The culture of an organization is embodied in its collective valuesystems, beliefs, norms, ideologies myths and rituals; they can motivate people and

can become valuable sources of efficiency and effectiveness. The following are the

illustrative organizational diverse cultivars which may have to be integrated during

post-merger period.

Strong top leadership versus team approach

Management by formal paper work versus management by wandering around

Individual decision versus group consensus decision

Rapid evaluation based on performance versus long term relationship based on

loyalty Rapid feedback for changes versus formal bureaucratic rules and procedures

Narrow career path versus movement through many areas

Risk taking encouraged versus one mistake you are out

Risky activities versus low risk activities

Narrow responsibility arrangement versus Everyone in this company

salesman (or cost controller, or product quality improver etc.)

Learn from customer versus we know what is best for customer

The above illustrative culture may provide basis for the classification of

organizational culture. There are four different types of organizational culture as

mentioned below:

Power

The Main characteristics are: essentially autocratic and suppressive of challenge

emphasis on individual rather than group decision making.

Role

The important features are: bureaucratic and hierarchical: emphasis no formal rules

and procedures: rather fast, efficient and standardized culture service.

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Task/Achievement

The main characteristics are: emphasis on team commitment task determines

organization of work: flexibility and worker autonomy needs creative environment.

Person/support

The important features are: emphasis on equality: seeks to nurture personal

development of individual members.

Poor cultural fit or incompletely is likely to result in considerable fragmentation,

uncertainly and cultural ambiguity, which may be experience as stressful by

organizational members, such stressful experience may lead to their loss of morale,

loss of commitment, confusion and hopelessness and may have dysfunctional impact

on organizational performance. Merger between certain types can be disastrous.

Different in culture may lead to polarization, negative evaluation of counterparts,

anxiety and ethnocentrism between top management teams of the acquired and

acquiring firms. In assessing the advisability of an acquisition, the acquired must

consider cultural risk in addition to strategic issues. The differences between the

national and the organizational cultures influence the cross-border acquisition

integration. Thus merging firms must consciously and proactively seek to transform

the cultures of their organizations.

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Q 2. What are the accounting treatment of share premium, goodwill and other

profits?

Ans.

Accounting treatment of share premium, goodwill and other profit

Share Premium account

Share premium is difference between the sale price fo the share and its par value.

Section 78 of the Companies Act, 1956 empowers a company to issue shares at a

premium. A sum equal to the aggregate amount or value of the premium on those

shares shall be transferred to an account to be called the share premium account.

Share premium account cannot be distributed to shareholder excepts by the way of

bonus issue, writing of preliminary expenses other expenses incurred or discount

allowed on any issue of share or debentures or to provide premium payable on the

redemption preference share or debentures. The board of the acquiring company shallfix up price of shares issued in three possible manners: at nominal value of shares, at

price equal to market price, at price equal to book price or the current valuation

reflecting the value of the consideration. In merger, the share acquired by the

companys shareholders is issued at nominal value whereas in takeovers it is the

market value at which such shares are issued by the acquiring company.

Goodwill

Goodwill represents the difference between the value of the assets of the acquired

company at the date acquisition by acquiring company and the cost in investment foracquired company. It is an intangible asset and is available for a takeover of going

concern.

Other Profits

The retained earning and capital reserves of acquired company in the year before

acquisition may be passed on to the acquiring company on merger which requires

treatment in account of the acquiring company as pre-acquisition profit. The question

arises whether these profits could be taken as current income of the acquiring

company or be treated as capital profit. These accounting problems solicit appropriate

solutions in the light of the existing accounting practices and the tax laws. Similarly,the problem of accounting remain to be settle in respect of: profit in the year of

acquisition of the company being acquired, profit of the company on consolidation

after merger and post acquisition account etc.

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3. Write short notes on:

(a) White Square

(b) Poison Put.

A. White Square

The white square is modified from of white knight. The difference being that the

while square does not acquire control of the target. In a white square transaction, the

target sells a block of its stock to a third party it considers to be friendly. The white

square sometimes is required to vote its shares with the target management. These

transactions often are accompanied by a stand-still agreement that limits the amount

of additional target stock the white square can purchase for a specified period of time

and restricts the sale of its target stock, usually giving the right of first refusal to the

target, in return the white square often receives a seat on the target board, generousdividends, and/or a discount on the target shares. Preferred stock enables the board to

tailor the characteristics of that stock to fit the transaction and so usually is used in

white square transaction.

B. Poison Put

A covenant allowing the bondholder to demand repayment in the event of a hostile

takeover. This poison put feature seeks to protect against risk of takeover-related

deterioration of target bond, at the same time placing a potentially large cash demand

on the new owner, thus raising the cost of acquisition. Merger and acquisition activity

is general has had negative impacts on bondholders wealth. This was particularly true

when leverage increases where substantial.