Essay about Great Expectations, Life of Pi and the Great...

English Literature Summer Task The Great Gatsby, Life of Pi and Great Expectations: The Opening Chapters The opening chapters of each of these three books are both similar and different in many ways, and succeed to keep the reader interested enough to carry on their journey with Pip, Nick or Pi. The way characterisation is put forward in these three novels is rather similar, in the fact that all three are written in the first person, giving the impression that the character in question is telling their story directly to you, the reader. Similarly, all three characters open with a description of themselves and their lives; Nick Carraway in The Great Gatsby stating facts of his childhood and education before going on to talk about his†¦show more content†¦All of these analyses differ greatly in detail and style. Across the three novels, a variation of language techniques is used to establish the correct mood within the first chapter. The Great Gatsby is slow going to begin with, and the reader wonders where the chapter will lead. Gatsby’s name is mentioned several times within the first few pages, but nothing more is said of him until his name comes up in conversation with that of Miss Baker. This then sets a curious and intrigued mood, and makes the reader wonder who and what Gatsby has to do with Nick, and how the story will develop. There are many sub-plots, such as Tom’s â€Å"woman in London†, that also create curiosity from the reader. At the very end of the chapter, the appearance and then sudden disappearance of Gatsby ends the chapter on a cliff-hanger, and therefore creates suspense and suspicion. Within Life of Pi, rhetorical questions are used to involve the reader and make them wonder what is coming next. I believe the mood within this first chapter is most awkward and strange, and feels almost as though the reader is intruding on a very personal story, or thought process. The epigraph immediately creates a depressed and down-tone mood to the story; however it does increase the desire to know what DID happen to Pi toShow MoreRelatedAnalysis Of Lolita s Tehran, And Fidelity1987 Words   |  8 Pages When entering this unit of postmodernism, my only thoughts were of a reluctant nature. I pessimistically expected only disagreement and frustration from reading the works of Life of Pi, Reading Lolita in Tehran, and Fidelity. However, my initial expectations were completely and thankfully wrecked. Though the philosophies of both Martel and Nafisi contradict my own, there are endless gems of insight to be plundered from their writings. These postmodern works emphasize where we as humans find our

Drug Trafficking A Social Evil - 2462 Words

Drug trafficking presents a social evil that has refused to go away despite numerous interventions by governments and concerned stakeholders across the world. This problem is mostly prevalent in America. Latin America is among the major producers of illicit drugs in the world. Besides being a big producer, Americans are also among the biggest consumers of drugs (Dorn et al. 23). The rise in organized crime organizations commonly known as cartels in America are in charge of drug trafficking. Research indicates that Americans spend over 150 billion dollars on illicit drugs. This money could alternatively be used constructively. Drug trafficking is an issue that has generated heated debates from policy makers, government officials as well as the members of the public. This is because of the associated negative effects associated with drug trafficking. The detrimental effects of drug trafficking includes increased crimes, national instability and other economic issues among others. 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Hypothesis Setting and Data Collection- myassignmenthelp.com

Question: Discuss about theHypothesis Setting and Data Collectionfor Globalization. Answer: Background Information Sherwin-Williams is a US-based company focused on the manufacture and supplies of painting products within the United States and the rest of the world. According to their sales statistics in 2016, more than 85% are from the United States. This percentage has been increased from 78.5% in 2012, leading to the declining focus on marketing and sales of the painting product to the rest of the world. The local focus on the sales and marketing of Sherwin-Williams might have been propelled by the high costs of marketing and distribution. The widening gap between the local and international sales of Sherwin-Williams products is a marketing issue that should be solved before the company is out of controlled to the global market. Globalization of the painting products would is a perfect marketing strategy that can ease the force used to sensitize the local customers. Case studies can be used to compare the company with other companies that have focused on international marketing and have successfully succeeded in their business. Therefore, Sherwin-Williams should target on improving the sales made on international markets. Opening branches in different areas across the globe can be among the strategies of the relieving the company from distributional costs. Comparing the sales distribution of PPG Industries and Sherwin-Williams, the former has a better global marketing and sales distribution. PPGs success on the international market has been enhanced by its strategic distribution of outlets in different parts of the globe. For instance, PPG Industries have 156 manufacturing sites with 45 of them in the United States and distributed over 19 states. There are other 14 sites located across other 10 countries wit hin America, 64 in Europe, Middle East and Africa and 33 in Asia Pacific. This perfect marketing strategy eases the distribution process of the products and reduces their costs (PPG, 2014). The distribution of Sherwin-Williams manufacturing sites has been centred within United Stated with few stretched in Canada. This limits the ability of the company to sell and market its products in other potential markets like Europe, Asia, Middle East and Africa. This pulldown to Sherwin-Williams has given other companies such as PPG industries the opportunity to dominate the international markets. One of the main disadvantage that Sherwin-Williams have in the market is the fact the US painting products market is highly competitive. Failure to explore other potential market reduces the chances of making more profits for the benefit of the company. We can assume that the painting companies originating from the United States and are performing better that Sherwin-Williams make more sales internationally. Also, it can be tested and proved whether such companies have more outlets and distributional centres outside the US compare to Sherwin-Williams (Pci, 2017). Hypothesis The hypothesis is based on the facts that Sherwin-Williams international sales performance is shrinking, hence endangering the future of their products on the global market. Paint manufacturing industries performing better than Sherwin-Williams have higher international sales. Paint manufacturing industries performing better than Sherwin-Williams have more international outlets compared to Sherwin-Williams The percentage of sales contributed by the international markets for competitors of Sherwin-Williams is has an increasing trend. The type of data to be collected All the hypothesis stated above are to be tested using discrete and continuous data. The first hypothesis is directed to the sales levels between Sherwin-Williams and the other companies that had performed better in the latest market survey. The research will be conducted to obtain the local and international sales then make performance comparisons. According to Coatings World (2017), Sherwin-Williams was the third-best performer in the paint and coating industry in 2017 with PPG industries and AkzoNobel taking the first and second positions respectively. Therefore, all the hypothesis will be answering by performing comparisons between PPG industries, AkzoNobel and Sherwin-Williams. The second hypothesis will be answered by profiling the number of manufacturing sites within and outside the United States for the three companies. Business investors believe that market returns are determined by a number of finances invested. Therefore, the amount of capital invested in the marketing str ategies to determine whether there is a correlation with the level of sales. Lastly, the proportion of the sales contributed to the international market will also be quantified determine whether it is a significant contributor to their market performance. How the data will be collected Secondary data will be collected from the 2016 annual reports of the respective companies. This will ensure that the collected data is valid and does not have errors. The reports will be obtained from their official websites. A thorough search will be conducted on the reports to extract all the required information. In cases where some of the required information and data are not available, online search from other validated sources will be performed to obtain the missing data. Based on the sources of the information, it will be certain that the extracted information will have high internal validity and adequate to answer the hypothesis. After extracting the data from the reports, it will be entered into Microsoft Excel and the required analysis and plotting conducted. The graphs and tables will then be transferred to the report to assist in answering the hypothesis and research questions. Discussion Comparing the international sales levels Figure 1: Net sales Figure 1 above shows that PPG industries make more sales on other international markets than in North America. This indicates that the company has invested much of the other continent than its origin. AkzoNobel which is located in Netherlands seems to be balancing between the sales from Europe, Middle East Africa with those from other countries. There does not seem to be a lot of difference between the sales obtained in 2014, 2015 and 2016. Sherwin-Williams seems to be performing poorly from other international markets as compared to the other two. This confirms and answers the first hypothesis by affirming that the best performing paint companies make more sales in the international platform in comparison with Sherwin-Williams (PPG, 2014). Manufacturing sites distribution Figure 2: Manufacturing sites and stores distribution PPG Industries seem to have a better distribution of outlets across the globe than AkzoNobel and Sherwin-Williams. This is a clear indication that the companies with a better balance of outlets across the globe are more likely to make more sales. PPG industries perform better compared to Sherwin-Williams and AkzoNobel. Therefore, we conclude that distributing the braches and outlets effectively enhances sales by reducing costs of transports and widening the range of potential customers. Sherwin-Williams should increase the number of outlets in areas like Europe, Middle East and Africa to widen their markets. Although this kind of investment has high risk, their return on investment is certain. Figure 3: Local versus Internationals Sales The third hypothesis states that the contribution of international sales to the total sales should be increasing because of the new investments and business ventures. However, according to obtained data, there is no much difference between 2014 and 2016. Sherwin-Williams sales obtained from other countries seem to be decreasing significantly, which might lead to full investment on the American market, hence abandoning the others. Limitations Access to real data The main challenge for this study was acquiring data that can be used to obtain sufficient statistical evidence to prove the hypothesis. There is a greater chance that some of the difference could not be developed because there was not enough data to perform the analysis. It was not possible to determine the amount of capital invested in marketing by the paint manufacturing company. This would have been a great opportunity to determine whether there is a relationship between the amount spent on marketing and the net sales or profits. Recommendation More research should be done to determine the effect of investing in international market as opposed to concentrating on the local market. References AkzoNobel. (2017). Annual Report 2015 | AkzoNobel. Akzonobel.com. Retrieved 16 October 2017, from https://www.akzonobel.com/for-investors/all-reports/annual-report-2015 Coatings World. (2017). 2017 Global Rankings of the TOP manufacturers of paints and coatings.. Coatings World. Retrieved 15 October 2017, from https://www.coatingsworld.com/issues/2017-07-01/view_features/2017-global-rankings-of-the-top-manufacturers-of-paints-coatings-adhesives-and-sealants Pci. (2017). 2016 Global Top 10 and PCI 25: Top Paint and Coatings Companies. Pcimag.com. Retrieved 16 October 2017, from https://www.pcimag.com/articles/102264-global-top-10-and-pci-25-top-paint-and-coatings-companies PPG. (2014). PPG PAINTS, COATINGS AND MATERIALS: OUR COMPANY - PPG - Paints, Coatings and Materials. Corporate.ppg.com. Retrieved 15 October 2017, from https://corporate.ppg.com/Our-Company/Facts-About-PPG.aspx

Moby Dick 2 Essays - Moby-Dick, Ishmael, Captain Ahab, Moby Dick

Moby Dick 2 Moby Dick The moral ambiguity of the universe is prevalent throughout Melville's Moby Dick. None of the characters represent pure evil or pure goodness. Even Melville's description of Ahab, whom he repeatedly refers to "monomaniacal," suggesting an amorality or psychosis, is given a chance to be seen as a frail, sympathetic character. When Ahab's "monomaniac" fate is juxtaposed with that of Ishmael, that moral ambiguity deepens, leaving the reader with an ultimate unclarity of principle. The final moments of Moby Dick bring the novel to a terse, abrupt climax. The mutual destruction of the Pequod and the White Whale, followed by Ishmael's epilogue occupies approximately half a dozen pages. Despite Melville's previous tendency to methodically detail every aspect of whaling life, he assumes a concise, almost journalistic approach in the climax. Note that in these few pages, he makes little attempt to assign value judgements to the events taking place. Stylistically, his narration is reduced to brusque, factual phrases using a greater number of semicolons. By ending the book so curtly, Melville makes a virtually negligible attempt at denouement, leaving what value judgements exist to the reader. Ultimately, it is the dichotomy between the respective fortunes of Ishmael and Ahab that the reader is left with. Herein lies a greater moral ambiguity than is previously suggested. Although Ishmael is the sole survivor of the Pequod, it is notable that in his own way, Ahab fulfills his desire for revenge by ensuring the destruction of the White Whale alongside his own end. Despite the seeming superiority of Ishmael's destiny, Melville does not explicitly indicate so. On the contrary, he subtly suggests that Ishmael's survival is lonely and empty upon being rescued: "It was the devious-cruising Rachel, that in her retracing search after her missing children, only found another orphan." (724) That single instance of the appellation "orphan" as applied to Ishmael speaks volumes when taken in light of the destruction of the Pequod and her crew. Melville's inclusion of Ishmael's survival as an epilogue, a suffix attached to the dramatic destruction of the Pequod, suggests that Ishmael's survival is an afterthought to the fate of Ahab and the rest of his crew. Ishmael's quiet words at the beginning of the chapter, "Why then here does any one step forth? ?Because one did survive the wreck," (723) indicate a deep humility on Ishmael's part. The question is then raised of why Ishmael is the sole survivor. It is clear that Ishmael significantly differs with Ahab concerning their respective perspectives of the White Whale. Ishmael clearly indicates in the chapter "The Try Works" how disagreeable he finds the mission and mentality of those around him: "?the rushing Pequod, freighted with savages, and laden with fire, and burning a corpse, and plunging into that blackness of darkness, seemed the material counterpart of her monomaniac commander's soul." (540) Here, Ishmael breaks his usual detached observancy and boldly divorces himself from Ahab's mission and those whom Ahab has recruited to aid him . Ishmael further distinguishes himself from the rest of the crew by being the sole non-exploiter of whales in general. Melville makes it clear early on that Ishmael initially chooses to ship on the Pequod for the experiential value of whaling. It has been indicated that his outlook on the whale is the only significantly benign one. Whereas Ishmael is terrified by the "whiteness of the whale," Stubb sees economic gain in the valuable whale oil, subtly hinted at by his overbearing gloating upon his first kill. In the harpooneers, we see a violent savageness, even in Queequeg's otherwise loving nature. To Ahab, the whale is a emblem of pure evil. Even prudent, rational Starbuck looks on the whale as a dumb animal, which it is his duty to exploit. The terror that Ishmael perceives is a consequence of his own vague fear of the whale's "nothingness." What Ishmael fears is the mystical, terrifying manifestation of white in the natural world, coupled with its subversion of the sense of purity attached to whiteness in the human world. Ishmael is distinguished from the rest of the crew in his ability to consider the perspectives of the others. In his role as narrator, Ishmael's ability

Necrotizing fasciitis essays

Necrotizing fasciitis essays Necrotizing fasciitis is a bacterial infection that attacks the soft tissue of the body, usually in an extremity following a minor trauma. There are also cases of it occurring after surgery, most often abdominal surgery. Necrotizing fasciitis (nek-roe-tie-zing fah-shee-eye-tis) is more commonly known as ''flesh-eating disease". It is a rare illness that causes extensive tissue destruction and can lead to death. Definition and Symptoms of necrotizing fasciitis Include, fever, sever pain, and a red painful swelling which spreads rapidly. Death can occur in 12 to 24 hours. When the disease spreads along the layers of tissue that surround muscle (the fascia), it is called necrotizing fasciitis. When the disease affects the muscle tissue, it is called necrotizing myositis. The bacterium comes from the group A streptococci a bacterial infection found most often in the throat and on the skin. People may carry group A streptococci and have no symptoms. Most GAS (group a streptococci) infections are relatively mild such as ''Strep Throat'', or Impetigo. This bacterium is spread through direct contact with mucus from the nose or throat of a person who is infected, or through contact with infected wounds or sores on the skin. Ill people such as those who have strep throat or skin infections are more likely to spread the infection. Persons who carry the bacteria but have no symptoms are much less contagious. Although healthy people can get invasive GAS disease, people with chronic illnesses like cancer, diabetes, and kidney dialysis, and those who use medications such as steroids have a higher risk. Doctors also point out that streptococcus A is not infectious in what is thought of as the traditional sense. It can not be spread by airborne dispersion, touching, or through fecal matter. It can however, be spread by transmission of blood or Doctors say that they are currently experimenting with several different treatment re...

Definition of Armature - Art History Glossary

Definition of Armature - Art History Glossary (noun) - In art, an armature is an underlying, unseen, supporting component (usually of wood or metal) for something else. Armatures are useful in sculpture, lost-wax casting (to help make the initial model three-dimensional) and even stop-motion animation puppets. Think of the chicken wire frame upon which plaster or papier mache strips are affixed in a sculpture, to get a mental visual. An even more dramatic example, designed by Alexandre Gustave Eiffel, is the iron armature inside Frà ©dà ©ric Auguste Bartholdis Statue of Liberty. Pronunciation arm ·a ·chur Common Misspellings amature, armeture Examples When this armature has been fixed, the artificer begins to take some fine earth, beaten together with horse dung and hair, as I said, and carefully lays a very thin coating all over which he allows to dry, and so on time after time with other coatings, always allowing each to dry until the figure becomes covered with earth raised to the thickness of half a span at the most. - Vasari on Technique (1907 trans.); pp. 160-161.

Toy store investigation Essay Example | Topics and Well Written Essays - 500 words

Toy store investigation - Essay Example There was another aisle called â€Å"Little Mommy†, which consisted primarily of baby dolls, stroller, baby bottles and fake diapers. The final aisle was called â€Å"Princess and Meâ€Å". This was my favorite aisle, because it was so fascinating and eye catching. It was filled with princess crowns that are covered in fake jewels. It also had adorable shoes with heels, as well as fairy tale wings, tutus and ballerina shoes. There were many things I found very disturbing about this section. The first thing was the way they portrayed a woman’s role to these young girls, particularly at this age because their brains are like sponges. I feel this is just teaching them when they grow up they have to cook, clean and take care of their children while looking fabulous. I was also shocked by the career choices that are given to young girls as well. Motherhood was the number one role that was illustrated in this section. They also expect the girl to be friendlier and less viol ent because of the language used on the packages. They frequently uses words like ‘pretty‘, ‘lovely‘, ‘friends‘, and ‘together‘. These words are displayed in a round smooth lettering. The boys’ section was directly across from the girls’ section, decorated all in blue. This section was also categorized by different themes.

Management government 4500 Term Paper Example | Topics and Well Written Essays - 1000 words

Management government 4500 - Term Paper Example A technology battles against other technological designs to achieve dominance (Suarez, 2004). Notably, just like any other technology, genetic engineering technology experiences various battle milestones in different stages of a dominance battle to achieve dominance. Battles for dominance occur where two or more technologies apply in one firm within the same industry (Suarez, 2004). In this context, the outcome of the technological battle will determine the fate of genetic engineering technology and the success of the products of this technology. Each milestone marked the beginning of a new stage in the dominance battle where each stage had different dynamics that derived distinct factors associated with dominance (Suarez, 2004). Biologists achieved the first milestone in overcoming startup challenges while trying to introduce the technology for commercial purposes. This was in in the first stage of dominance battle that introduced the key characteristics of the technology. The secon d milestone was in the second stage that demonstrated the technical feasibility of the technology and related to the appearance of the ?rst working prototype (Suarez, 2004) of the GMO that warned other technologies. Moreover, the successful introduction of the first GMO for commercial purposes was another milestone in the dominance process though it was too expensive for the mass market. This was in the third stage that created the market for the technology. The fourth milestone related to establishment of GMOs as clear front-runner in a stage with several competitors in the dominance battle where this technology stood a chance of winning the battle (Suarez, 2004). Ultimately, the technology’s achievement of dominance marked the last milestone where the technology is now dominant in many industries as it occupies a significant market share (Suarez, 2004). This was in the last stage of dominance battle where genetic engineering technology emerged as a clear dominant technology in the market. Response 2 The organic food industry poses a relevant ethical dilemma on whether the benefits of developing and supplying GMOs supersede the future demerits that GMOs may pose for the environment, human beings, and the animal kingdom. To this effect, I recommend that the world addresses the possible adverse effects of using GMOs and seek to achieve global food security through sound scientific principles. Such a move would be consistent with the actor’s basic duties of seeking to achieve global food security. At the same time, this recommendation will respect the rights and other legitimate claims of the affected parties as it will ensure that human beings, the ecosystem, and animals are free from the adverse effects of GMOs and that animals and human beings are free from hunger. This recommendation is equally compatible with the scientists’ deep commitment of ensuring global food security without jeopardizing the future lives of the affected parties. R esponse 3 Based on Franco Malerba’s reading â€Å"Innovation and the dynamics and evolution of industries: progress and challenges,† I choose to describe how the structure and current state of emergence in the organic food industry affects competition and innovation. There have been various analyses on the relationship between innovation and the dynamics and evolution of industries, which includes the organic food

Romeo and Juliet - Zeffirelli and Luhrmann Essay Example for Free

Romeo and Juliet Zeffirelli and Luhrmann Essay The two main film interpretations of Shakespeares Romeo and Juliet are Zeffirellis, made in 1968, and Luhrmanns, made in 1997. Although they use the same original script written by Shakespeare, these two films are very different. Zeffirellis is set in the 16th century, at the time when the screenplay would have first been written whereas Luhrmann has set his film in modern time but still using the Shakespearian language. The most popular and well-known scene of Romeo and Juliet is the balcony scene where Romeo and Juliet first declare their love for each other. Luhrmanns version of the balcony scene is started with a shrill crash as Romeo enters the Capulets house and knocks a post to the ground. This gains the audiences attention immediately for the scene. Romeos movements are clumsy and speech is fast-paced and raspy. Romeo escapes outside and awkwardly attempts to climb a vine below Juliets window. The camera pans out frequently to show the view of their entire Capulet estate, this shows the importance of where they are as its a forbidden area for Romeo to be. Romeos inept actions put a brief comical twist into this classic tragedy. From Juliets window, a small figurine of the Virgin Mary can be seen for a short time through the curtains. This has a strong symbolic meaning, showing the contrast between Romeo and Juliets sexual intentions and a sense of purity and religion. It could also be a symbol of warning meant for Romeo and Juliet. When Juliet is first seen in the Lurhmann version, she is the complete opposite of Romeo. Juliet is wearing a flowing white dress, signifying her innocence and inexperience; she delicately exits an elevator and begins to speak her lines with full use of facial expressions, acting confused and stressing the unimportance of names. Romeo jumps out abruptly and the serenity of Juliet looking over her swimming pool is broken by her shocked high-pitched scream. The two fall together into the pool with the same startling affect used at the opening of the balcony scene, grabbing the attention of the audience. The sudden movements are quickly slowed as Romeo and Juliet start to talk. Their words are hurried and there is an obvious need for secrecy which is stressed by the security cameras and guards surrounding the area. Their kisses are romantic and loving but not lacking  passion. Juliet is suddenly struck with fear of being caught with Romeo and with another sudden movement, she leaves the pool. The scene ends romantically and with both Romeo and Juliet feeling happy. Throughout the film, Romeo and Juliet are both on the same level, showing that their characters are equal at this time. The romantic feel is constantly interrupted by sudden movements or noises to keep the audiences concentration, making the film interesting to watch. Zeffirelli starts the balcony scene with Romeo gazing longingly at Juliet who is on her balcony dreamily staring across her garden. Romeos lines are whispered, romantic and spoken very slowly and softly. The scene is shot through the leaves to show the mystery and danger of Romeos being there. The bright light silhouettes Juliets figure like an angel. Juliets dress is low cut and quite revealing making her seem mature and seductive, which is very different to Luhrmanns interpretation of Juliet as his is very innocent. When Juliet first sees Romeo, her actions become quick, rushed and sudden. Juliet spends the entire When Romeo and Juliet share a kiss it is sexually motivated and very passionate. Romeos movements become excited and quick as he swings from trees. The relationship between Romeo and Juliet is very passionate and lustful as opposed to how the relationship was portrayed in Lurhmann. When Juliet decides its time for Romeo to leave, the pace of the film slows once again. The voices become romantic instead of sexual. As Romeo and Juliet part, the camera pans out to show their hands drifting further apart from each other in a slow lethargic movement showing the separation and isolation of Romeo and Juliets character. Zeffirellis film was very serious, stressing on infatuation where as Lurhmanns film was light-hearted and showed real love between Romeo and Juliet.

What is Asbestos? Essay -- Environment, Minerals

INTRODUCTION Asbestos has been used since prehistoric times and there is archaeological evidence from Finland, pottery containing asbestos fibres dating from 2500 BC (Mcculloch, 1986). Where asbestos fibres were mixed with clay to form stronger ceramic utensils and pots (Benarde, 1990), the ancient Greeks used it to make lamp wicks and other fireproof items. However, the romans wove asbestos fibres into fabrics to make towels, nets and even head coverings for women (Asbestos Diseases Society of Australia, 1995, p.10). The substance was known to be inextinguishable or unquenchable. Though, asbestos had been around for thousands of years, mass use of the product became popular in the 1800s (Mcculloch, 1986). It was made up of non-flammable fibres and was very sturdy. Also, it was used in homes, businesses, and schools. Asbestos is a dangerous fibre, because its fibres become airborne and can be inhaled or swallowed (Lu & Kacew, 2009). Over time, it can cause both chronic lung conditions and fatal f orms of asbestos cancer. (Benarde, 1990; Mcculloch, 1986). In the early 1900s to 1980s doctors in Europe discovered that workers were suffering from the respiratory diseases (Benarde, 1990), for the reason that they worked in heavily polluted asbestos containing atmospheres, excessive numbers of them became cases of asbestosis, lung cancer and mesothelioma, because the workers were exposed directly or indirectly in virtually any occupation, even those who worked in offices (Benarde, 1990; Mcculloch, 1986). Furthermore, employees who worked for asbestos ship building, construction, mining, and other factories whose products used asbestos were also getting ill (Mcculloch, 1986), asbestos fibres were also being brought home on employee's cl... ...ially in asbestos mining. A lot of the victims of the disease had worked directly with asbestos; nevertheless, these people got their exposures in the shipyard, construction trades, and buildings as well as from the contamination of their homes and communities. As a result it occurred that nearly the uncontrolled use of asbestos progressively increased the population at risk from few thousand asbestos workers to millions of people in the general population. The employers and employees who worked in the asbestos reduction industry continued to alert on the handling of the human carcinogen. However, the rules and regulations were put in place to ensure safety and protection of the workers. Sufficiency protective equipment and training were provided, medical surveillance programs by conducting routine examination of all the workers who worked with asbestos.

Excellence in Financial Management

Excellence in Financial Management Course 7: Mergers & Acquisitions (Part 2) Prepared by: Matt H. Evans, CPA, CMA, CFM Part 2 of this course continues with an overview of the merger and acquisition process, including the valuation process, post merger integration and anti-takeover defenses. The purpose of this course is to give the user a solid understanding of how mergers and acquisitions work. This course deals with advanced concepts in valuation. Therefore, the user should have an understanding of cost of capital, forecasting, and value based management before taking this course. This course is recommended for 2 hours of Continuing Professional Education. In order to receive credit, you will need to pass a multiple choice exam which is administered over the internet at www. exinfm. com/training Published June 2000 Chapter 4 Valuation Concepts & Standards As indicated in Part 1 of this Short Course, a major challenge within the merger and acquisition process is due diligence. One of the more critical elements within due diligence is valuation of the Target Company. We need to assign a value or more specifically a range of values to the Target Company so that we can guide the merger and acquisition process. We need answers to several questions: How much should we pay for the target company, how much is the target worth, how does this compare to the current market value of the target company, etc.? It should be noted that the valuation process is not intended to establish a selling price for the Target Company. In the end, the price paid is whatever the buyer and the seller agree to. The valuation decision is treated as a capital budgeting decision using the Discounted Cash Flow (DCF) Model. The reason why we use the DCF Model for valuation is because: Discounted Cash Flow captures all of the elements important to valuation. ? Discounted Cash Flow is based on the concept that investments add value when returns exceed the cost of capital. ? Discounted Cash Flow has support from both research and within the marketplace. The valuation computation includes the following steps: 1. Discounting the future expected cash flows over a forecast period. 2. Adding a terminal value to cover the period beyond the forecast period. 3. Adding investment income, excess cash, and other non-operating assets at their present values. . Subtracting out the fair market values of debt so that we can arrive at the value of equity. Before we get into the valuation computation, we need to ask: What are we trying to value? Do we want to assign value to the equity of the target? Do we value the Target Company on a long-term basis or a short-term basis? For example, the valuation of a company expected to be liquidated is different from the valuation of a going concern. Most mergers and acquisitions are directed at acquiring the equity of the Target Company. However, when you acquire ownership (equity) of the Target Company, you will assume the outstanding liabilities of the target. This will increase the purchase price of the Target Company. Example 1 – Determine Purchase Price of Target Company Ettco has agreed to acquire 100% ownership (equity) of Fulton for $ 100 million. Fulton has $ 35 million of liabilities outstanding. Amount Paid to Acquire Fulton$ 100 million Outstanding Liabilities Assumed 35 million Total Purchase Price$ 135 million Key Point ( Ettco has acquired Fulton based on the assumption that Fulton's business will generate a Net Present Value of $ 135 million. For publicly traded companies, we can get some idea of the economic value of a company by looking at the stock market price. The value of the equity plus the value of the debt is the total market value of the Target Company. Example 2 – Total Market Value of Target Company Referring back to Example 1, assume Fulton has 2,500,000 shares of stock outstanding. Fulton's stock is selling for $ 60. 00 per share and the fair market value of Fulton's debt is $ 40 million. Market Value of Stock (2,500,000 x $ 60. 00) $ 150 million Market Value of Debt 40 million Total Market Value of Fulton$ 190 million A word of caution about relying on market values within the stock market; stocks rarely trade in large blocks similar to merger and acquisition transactions. Consequently, if the publicly traded target has low trading volumes, then prevailing market prices are not a reliable indicator of value. Income Streams One of the dilemmas within the merger and acquisition process is selection of income streams for discounting. Income streams include Earnings, Earnings Before Interest & Taxes (EBIT), Earnings Before Interest Taxes Depreciation & Amortization (EBITDA), Operating Cash Flow, Free Cash Flow, Economic Value Added (EVA), etc. In financial management, we recognize that value occurs when there is a positive gap between return on invested capital less cost of capital. Additionally, we recognize that earnings can be judgmental, subject to accounting rules and distortions. Valuations need to be rooted in â€Å"hard numbers. † Therefore, valuations tend to focus on cash flows, such as operating cash flows and free cash flows over a projected forecast period. Free Cash Flow One of the more reliable cash flows for valuations is Free Cash Flow (FCF). FCF accounts for future investments that must be made to sustain cash flow. Compare this to EBITDA, which ignores any and all future required investments. Consequently, FCF is considerably more reliable than EBITDA and other earnings-based income streams. The basic formula for calculating Free Cash Flow (FCF) is: FCF = EBIT (1 – t ) + Depreciation – Capital Expenditures + or – Net Working Capital ( 1 – t ) is the after tax percent, used to convert EBIT to after taxes. Depreciation is added back since this is a non-cash flow item within EBIT Capital Expenditures represent investments that must be made to replenish assets and generate future revenues and cash flows. Net Working Capital requirements may be involved when we make capital investments. At the end of a capital project, the change to working capital may get reversed. Example 3 – Calculation of Free Cash Flow EBIT$ 400 Less Cash Taxes (130) Operating Profits after taxes 270 Add Back Depreciation 75 Gross Cash Flow 345 Change in Working Capital 42 Capital Expenditures (270) Operating Free Cash Flow 117 Cash from Non Operating Assets * 10 Free Cash Flow$ 127 * Investments in Marketable Securities In addition to paying out cash for capital investments, we may find that we have some fixed obligations. A different approach to calculating Free Cash Flow is: FCF = After Tax Operating Tax Cash Flow – Interest ( 1 – t ) – PD – RP – RD – E PD: Preferred Stock Dividends RP: Expected Redemption of Preferred Stock RD: Expected Redemption of Debt E: Expenditures required to sustain cash flows Example 4 – Calculation of Free Cash Flow The following projections have been made for the year 2005: ? Operating Cash Flow after taxes are estimated as $ 190,000 ? Interest payments on debt are expected to be $ 10,000 ? Redemption payments on debt are expected to be $ 40,000 ? New investments are expected to be $ 20,000 The marginal tax rate is expected to be 30% After Tax Operating Cash Flow$ 190,000 Less After Tax Depreciation ($10,000 x (1 – . 30)) ( 7,000) Debt Redemption Payment (40,000) New Investments (20,000) Free Cash Flow$ 123,000 Discount Rate Now that we have some idea of our income stream for valuing the Target Company, we need to de termine the discount rate for calculating present values. The discount rate used should match the risk associated with the free cash flows. If the expected free cash flows are highly uncertain, this increases risk and increases the discount rate. The riskier the investment, the higher the discount rate and vice versa. Another way of looking at this is to ask yourself – What rate of return do investors require for a similar type of investment? Since valuation of the target's equity is often the objective within the valuation process, it is useful to focus our attention on the â€Å"targeted† capital structure of the Target Company. A review of comparable firms in the marketplace can help ascertain targeted capital structures. Based on this capital structure, we can calculate an overall weighted average cost of capital (WACC). The WACC will serve as our base for discounting the free cash flows of the Target Company. Basic Applications Valuing a target company is more or less an extension of what we know from capital budgeting. If the Net Present Value of the investment is positive, we add value through a merger and acquisition. Example 5 – Calculate Net Present Value Shannon Corporation is considering acquiring Dalton Company for $ 100,000 in cash. Dalton's cost of capital is 16%. Based on market analysis, a targeted cost of capital for Dalton is 12%. Shannon has estimated that Dalton can generate $ 9,000 of free cash flows over the next 12 years. Using Net Present Value, should Shannon acquire Dalton? Initial Cash Outlay$ (100,000) FCF of $ 9,000 x 6. 1944 * 55,750 Net Present Value $ ( 44,250) * present value factor of annuity at 12%, 12 years. Based on NPV, Shannon should not acquire Dalton since there is a negative NPV for this investment. We also need to remember that some acquisitions are related to physical assets and some assets may be sold after the merger. Example 6 – Calculate Net Present Value Bishop Company has decided to sell its business for a sales price of $ 50,000. Bishop's Balance Sheet discloses the following: Cash$ 3,000 Accounts Receivable 7,000 Inventory 12,000 Equipment – Dye 115,000 Equipment – Cutting 35,000 Equipment – Packing 30,000 Total Assets$ 202,000 Liabilities 80,000 Equity 122,000 Total Liab & Equity$ 202,000 Allman Company is interested in acquiring two assets – Dye and Cutting Equipment. Allman intends to sell all remaining assets for $ 35,000. Allman estimates that total future free cash flows from the dye and cutting equipment will be $ 26,000 per year over the next 8 years. The cost of capital is 10% for the associated free cash flows. Ignoring taxes, should Allman acquire Bishop for $ 50,000? Amount Paid to Bishop$ (50,000) Amount Due Creditors (80,000) Less Cash on Hand 3,000 Less Cash from Sale of Assets 35,000 Total Initial Cash Outlay$ (92,000) Present Value of FCF's for 8 years at 10% – $ 26,000 x 5. 3349 138,707 Net Present Value (NPV)$ 46,707 Based on NPV, Allman should acquire Bishop for $ 50,000 since there is a positive NPV of $ 46,707. A solid estimation of incremental changes to cash flow is critical to the valuation process. Because of the variability of what can happen in the future, it is useful to run cash flow estimates through sensitivity analysis, using different variables to assess â€Å"what if† type analysis. Probability distributions are used to assign values to various variables. Simulation analysis can be used to evaluate estimates that are more complicated. Valuation Standards Before we get into the valuation calculation, we should recognize valuation standards. Most of us are reasonably aware that Generally Accepted Accounting Principles (GAAP) are used as standards to guide the preparation of financial statements. When we calculate the value (appraisal) of a company, there is a set of standards known as â€Å"Uniform Standards of Professional Appraisal Practice† or USAAP. USAAP's are issued by the Appraisals Standards Board. Here are some examples: To avoid misuse or misunderstanding when Discounted Cash Flow (DCF) analysis is used in an appraisal assignment to estimate market value, it is the responsibility of the appraiser to ensure that the controlling input is consistent with market evidence and prevailing attitudes. Market value DCF analysis should be supported by market derived data, and the assumptions should be both market and property specific. Market value DCF analysis is intended to reflect the expectations and perceptions of market participants along with available factual data. In developing a real property appraisal, an appraiser must: (a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a creditable appraisal; (b) not commit a substantial error of omission or co-omission that significantly affects an appraisal; (c) not render appraisal services in a careless or negligent manner, such as a series of errors that considered individually may not significantly affect the result of an appraisal, but which when considered in aggregate would be misleading. Another area that can create some confusion is the definition of market value. This is particularly important where the Target Company is private (no market exists). People involved in the valuation process sometimes refer to IRS Revenue Ruling 59-60 which defines market value as: The price at which the property could change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. A final point about valuation standards concerns professional certification. Two programs directly related to valuations are Certified Valuation Analyst (CVA) and Accredited in Business Valuations (ABV). The CVA is administered by the National Association of CVA's (www. nacva. com) and the ABV is administered by the American Institute of Certified Public Accountants (AICPA – www. aicpa. org). Enlisting people who carry these professional designations is highly recommended. Chapter 5 The Valuation Process We have set the stage for valuing the Target Company. The overall process is centered around free cash flows and the Discounted Cash Flow (DCF) Model. We will now focus on the finer points in calculating the valuation. In the book Valuation: Measuring and Managing the Value of Companies, the authors Tom Copland, Tim Koller, and Jack Murrin outline five steps for valuing a company: 1. Historical Analysis: A detail analysis of past performance, including a determination of what drives performance. Several financial calculations need to be made, such as free cash flows, return on capital, etc. Ratio analysis and benchmarking are also used to identify trends that will carry forward into the future. 2. Performance Forecast: It will be necessary to estimate the future financial performance of the target company. This requires a clear understanding of what drives performance and what synergies are expected from the merger. 3. Estimate Cost of Capital: We need to determine a weighed average cost of capital for discounting the free cash flows. 4. Estimate Terminal Value: We will add a terminal value to our forecast period to account for the time beyond the forecast period. 5. Test & Interpret Results: Finally, once the valuation is calculated, the results should be tested against independent sources, revised, finalized, and presented to senior management. Financial Analysis We start the valuation process with a complete analysis of historical erformance. The valuation process must be rooted in factual evidence. This historical evidence includes at least the last five years (preferably the last ten years) of financial statements for the Target Company. By analyzing past performance, we can develop a synopsis or conclusion about the Target Company's future expected performance. It is also importa nt to gain an understanding of how the Target Company generates and invests its cash flows. One obvious place to start is to assess how the merger will affect earnings. P / E Ratios (price to earnings per share) can be used as a rough indicator for assessing the impact on earnings. The higher the P / E Ratio of the acquiring firm compared to the target company, the greater the increase in Earnings per Share (EPS) to the acquiring firm. Dilution of EPS occurs when the P / E Ratio Paid for the target exceeds the P / E Ratio of the acquiring company. The size of the target's earnings is also important; the larger the target's earnings are relative to the acquirer, the greater the increase to EPS for the combined company. The following examples will illustrate these points. Example 7 – Calculate Combined EPS Greer Company has plans to acquire Holt Company by exchanging stock. Greer will issue 1. shares of its stock for each share of Holt. Financial information for the two companies is as follows: Greer Holt Net Income$ 400,000 $ 100,000 Shares Outstanding 200,000 25,000 Earnings per Share$ 2. 00$ 4. 00 Market Price of Stock$ 40. 00$ 48. 00 Greer expects the P / E Ratio for the combined company to be 15. Combined EPS = ($ 400,000 + $ 100,000) / (200,000 share s + (25,000 x 1. 5)) = $ 500,000 / 237,500 = $ 2. 11 Expected P / E Ratio x 15 Expected Price of Stock$ 31. 65 Before we move to our next example, we should explain exchange ratios. The exchange ratio is the number of shares offered by the acquiring company in relation to each share of the Target Company. We can calculate the exchange ratio as: Price Offered by Acquiring Firm / Market Price of Acquiring Firm Example 8 – Determine Dilution of EPS Romer Company will acquire all of the outstanding stock of Dayton Company through an exchange of stock. Romer is offering $ 65. 00 per share for Dayton. Financial information for the two companies is as follows: Romer Dayton Net Income$ 50,000 $ 10,000 Shares Outstanding 5,000 2,000 Earnings per Share$ 10. 00$ 5. 00 Market Price of Stock$ 150. 00 P / E Ratio 15 1) Calculate shares to be issued by Romer: $ 65 / $ 150 x 2,000 shares = 867 shares to be issued. 2) Calculate Combined EPS: ($ 50,000 + $ 10,000) / (5,000 + 867) = $ 10. 23 3) Calculate P / E Ratio Paid: Price Offered / EPS of Target or $ 65. 00 / $ 5. 00 = 13 4) Compare P / E Ratio Paid to current P / E Ratio: Since 13 is less than the current ratio of 15, there should be no dilution of EPS for the combined company. 5) Calculate maximum price before dilution of EPS: 15 = price / $ 5. 0 or $ 75. 00 per share. $ 75. 00 is the maximum price that Romer should pay before EPS are diluted. It is important to note that we do not want to get overly pre-occupied with earnings when it comes to financial analysis. Most of our attention should be directed at drivers of value, such as return on capital. For example, free cash flow and economic value added are much more important drivers of value than EPS and P / E Ra tios. Therefore, our financial analysis should determine how does the target company create value – does it come from equity, what capital structure is used, etc.? In order to answer these questions, we need to: 1. Calculate value drivers, such as free cash flow. 2. Analyze the results, looking for trends and comparing the results to other companies. 3. Looking back historically in order to ascertain a â€Å"normal† level of performance. 4. Analyzing the details to uncover how the Target Company creates value and noting what changes have taken place. Value Drivers Three core financial drivers of value are: 1. Return on Invested Capital (NOPAT / Invested Capital) 2. Free Cash Flows 3. Economic Value Added (NOPAT – Cost of Capital) NOPAT: Net Operating Profits After Taxes A value driver can represent any variable that affects the value of the company, ranging from great customer service to innovative products. Once we have identified these value drivers, we gain a solid understanding about how the company functions. The key is to have these value drivers fit between the Target Company and the Acquiring Company. When we have a good fit or alignment, management will have the ability to influence these drivers and generate higher values. In the book Valuation: Measuring and Managing the Value of Companies, the authors break down value drivers into three categories: Type of Value DriverManagement's Ability to Influence Level 1 – GenericLow Level 2 – Business UnitsModerate Level 3 – OperatingHigh For example, sales revenue is a generic value driver (level 1), customer mix would be a business unit value driver (level 2), and customers retained would be an operating value driver (level 3). Since value drivers are inter-related and since management will have more influence over level 3 drivers, the key is to ascertain if the merger will give management more or less influence over the operating value driver. If yes, then a merger and acquisition could lead to revenue or expense synergies. Be advised that you should not work in reverse order; i. e. from level 1 down to level 3. For example, an increase in sales pricing will add more value to level 1, but in the long-run you will hurt customers retained (level 3) and thus, you may end-up destroying value. Once we have identified value drivers, we can develop a strategic view of the Target Company. This strategic view along with drivers of value must be considered in making a performance forecast of the Target Company. We want to know how will the Target Company perform in the future. In order to answer this question, we must have a clear understanding of the advantages that the Target Company has in relation to the competition. These competitive advantages can include things like customer mix, brand names, market share, business processes, barriers to competition, etc. An understanding of competitive advantages will give us insights into future expected growth for the Target Company. Forecasting Performance Now that we have some insights into future growth, we can develop a set of performance scenarios. Since no-one can accurately predict the future, we should develop at least three performance scenarios: . Conservative Scenario: Future growth will be slow and decline over time. 2. General Industry Scenario: Continued moderate growth similar to the overall industry. 3. Improved Growth Scenario: Management has the ability to influence level 1 value drivers and we can expect above average growth. Keep in mind that performance scenarios have a lot of assumptions and many of these assumptions are based on things like future competition, new technologies, changes in the economy, changes in consumer behavior, etc. The end-result is to arrive at a â€Å"most likely† value between the different scenarios. Example 9 – Overall Value per Three Scenarios You have calculated three Net Present Value's (NPV) over a 12 year forecast period. Based on your analysis of value drivers, strategies, competition, and other variables, you have assigned the following values to each scenario: ScenarioProbability xNet Present Value =Expected Value Conservative 20% $ 180,000$ 36,000 Normal 65% 460,000 299,000 M & A Growth 15% 590,000 88,500 Overall Value of Target Company$ 423,500 The Valuation Model should include a complete set of forecasted financial statements. Usually a set of forecasted financial statements will start with the Sales Forecast since sales is a driver behind many account balances. A good sales forecast will reflect future expected changes in sales prices, volumes, and other variables. NOTE: For more information about preparing forecasted financial statements, refer to Short Course 2 – Financial Planning & Forecasting. Two important points when preparing your forecast are: Historical Perspective: Make sure the pieces of your forecast fit together and flow from historical performance. Historical values are very important for predicting the future. You can gain an historical perspective by simply plotting financial trends (see Example 10). Forecast Period: Your forecast period should cover a long enough period for the target company to reach a stable and consistent performance level. For example, a company has reached a stable point when it can earn a constant rate of return on capital for an indefinite period and the company has the ability to reinvest a constant proportion of earnings back into the business. Rarely is the forecast period less than seven years. When in doubt, use a longer forecast than a shorter forecast. The final step in forecasting the financials is to estimate the value drivers and verify the value drivers against historical facts. As we indicated, three core drivers are return on capital, free cash flow, and economic value added. Make sure you test your results; are key drivers consistent with what has happened in the past, what are the trends for future growth, what are the competitive trends, how will this impact performance, etc.? Example 10 – Plotting Historical Trends to help with preparing forecasted financial statements 1990 1991 1992 1993 1994 Operations: Growth in Revenues 14% 12% 11% 11% 10% Growth in Margins 7% 7% 6% 5% 5% Working Capital: Cash 2% 2% 2% 3% 3% Accts Rec 12% 13% 13% 13% 14% Accts Payable 4% 4% 5% 5% 5% Investments: Assets to Sales 30% 31% 28% 29% 28% Return on Capital 14% 12% 13% 13% 12% When we have completed the Valuation Model, we will have a set of forecasted financial statements supporting each of our scenarios: Forecasted Income Statement – 3 Scenarios ? Forecasted Balance Sheet – 3 Scenarios ? Forecasted Free Cash Flows – 3 Scenarios ? Forecasted Return on Capital – 3 Scenarios ? Forecasted Performance Ratios – 3 Scenarios Example 11 – Forecasted Income Statement for Scenario 2 – Moderate ($ million) 2001 2002 2003 2004 2005 2006 2007 Revenues $ 6. 50$ 6. 70 $ 6. 85 $6. 95 $7. 05 $7. 09 $7. 12 Less Operating 3. 20 3. 30 3. 41 3. 53 3. 65 3. 72 3. 78 Less Depreciation . 56 . 54 . 2 . 85 . 80 . 77 . 72 EBIT 2. 74 2. 86 2. 92 2. 57 2. 60 2. 60 2. 62 Less Interest . 405 . 380 . 365 . 450 . 440 . 410 . 390 Earnings Before Tax 2. 335 2. 480 2. 555 2. 12 2. 16 2. 19 2. 23 Less Taxes . 780 . 810 . 870 . 650 . 660 . 71 . 73 Net Income 1. 555 1. 670 1. 685 1. 470 1. 500 1. 48 1. 50 Terminal Values It is quite possible that free cash flows will be generated well beyond our forecast period. Therefore, many valuations will add a terminal value to the valuation forecast. The terminal value represents the total present value that we will receive after the forecast period. Example 12 – Adding Terminal Value to Valuation Forecast Net Present Value for forecast period (Example 9) $ 423,500 Terminal Value for beyond forecast period 183,600 Total NPV of Target Company$ 607,100 There are several approaches to calculating the terminal value: Dividend Growth: Simply take the free cash flow in the final year of the forecast, add a nominal growth rate to this flow and discount the free cash flow as a perpetuity. Terminal value is calculated as: Terminal Value = FCF ( t + 1 ) / wacc – g ( t + 1 ) refers to the first year beyond the forecast period wacc: weighted average cost of capital g: growth rate, usually a very nominal rate similar to the overall economy It should be noted that FCF used for calculating terminal values is a normalized free cash flow (FCF) representative of the forecast period. Example 13 – Calculate Terminal Value Using Dividend Growth You have prepared a forecast for ten years and the normalized free cash flow is $ 45,000. The growth rate expected after the forecast period is 3%. The wacc for the Target Company is 12%. ($ 45,000 x 1. 03) / (. 12 – . 03) = $ 46,350 / . 09 = $ 515,000 If we wanted to exclude the growth rate in Example 13, we would calculate terminal value as $ 46,350 / . 12 = $ 386,250. This gives us a much more conservative estimate. Adjusted Growth: Growth is included to the extent that we can generate returns higher than our cost of capital. As a company grows, you must reinvest back into the business and thus free cash flows will fall. Therefore, the Adjusted Growth approach is one of the more appropriate models for calculating terminal values. Terminal Value = EBIT ( 1 – tr) ( 1 – g / r ) / wacc – g tr: tax rateg: growth rater: rate of return on new investments Example 14 – Calculate Terminal Value Using Adjusted Growth Normalized EBIT is $ 60,000 and the expected normal tax rate is 30%. The overall long-term growth rate is 3% and the weighted average cost of capital is 12%. We expect to obtain a rate of return on new investments of 15%. $ 61,800 ( 1 – . 30 ) ( 1 – . 03 / . 15 ) / (. 12 – . 03) = $ 43,260 ( . 80 ) / . 09 = $ 384,533 If we use Free Cash Flows, we would have the following type of calculation: Earnings Before Interest Taxes (EBIT)$ 60,000 Remove taxes (1 – tr ) x . 70 Operating Income After Taxes 42,000 Depreciation (non cash item) 12,000 Less Capital Expenditures ( 9,000) Less Changes to Working Capital ( 1,000) Free Cash Flow 44,000 Growth Rate @ 3% x 1. 03 Free Cash Flow ( t + 1 ) 45,320 Adjust Growth > Return on Capital x . 80 Adjusted FCF ( t + 1 ) 36,256 Divided by wacc – g or . 12 – . 03 . 09 Terminal Value$ 402,844 EVA Approach: If your valuation is based on economic value added (EVA), then you should extend this concept to your terminal value calculation: Terminal Value = NOPAT ( t + 1 ) x ( 1 – g / rc ) / wacc – g NOPAT: Net Operating Profits After Taxesrc: return on invested capital Terminal values should be calculated using the same basic model you used within the forecast period. You should not use P / E multiples to calculate terminal values since the price paid for a target company is not derived from earnings, but from free cash flows or EVA. Finally, terminal values are appropriate when two conditions exist: 1. The Target Company has consistent profitability and turnover of capital for generating a constant return on capital. . The Target Company is able to reinvest a constant level of cash flow because of consistency in growth. If these two criteria do not exist, you may need to consider a more conservative approach to calculating terminal value or simply exclude the terminal value altogether. Example 15 – Summarize Valuation Calculation Based on Expected Values under Three Scenarios Present Value of FCF' s for 10 year forecast period$ 62,500 Terminal Value based on Perpetuity 87,200 Present Value of Non Operating Assets 8,600 Total Value of Target Company 158,300 Less Outstanding Debt at Fair Market Value: Short-Term Notes Payable ( 6,850) Long-Term Bonds (25 year Grade BB) ( 26,450) Long-Term Bonds (10 year Grade AAA) ( 31,900) Long-Term Bonds ( 5 year Grade BBB) ( 22,700) Present Value of Lease Obligations ( 17,880) Total Value Assigned to Equity 52,520 Outstanding Shares of Stock 7,000 Value per Share ($ 52,520 / 7,000)$ 7. 50 Example 16 – Calculate Value per Share You have completed the following forecast of free cash flows for an eight year period, capturing the normal business cycle of Arbor Company: Year FCF 2001$ 1,550 002 1,573 2003. 1,598 2004. 1,626 2005. 1,656 2006. 1,680 2007. 1,703 2008. 1,725 Arbor has non-operating assets of $ 150. These assets have an estimated present value of $ 500. Based on the present value of future payments, the present value of debt is $ 2,800. Terminal value is calculated using the dividend growth model. A nominal growth rate of 2% will be used. Arbor's targeted cost of capital is 14%. Arbor ha s 3,000 shares of stock outstanding. What is Arbor's Value per Share? Year FCF x P. V. @ 14%Present Value 2001$ 1,550. 8772$ 1,360 2002 1,573. 7695 1,210 003. 1,598. 6750 1,079 2004. 1,626. 5921 963 2005. 1,656. 5194 860 2006. 1,680. 4556 765 2007. 1,703. 3996 681 2008. 1,725. 3506 605 Total Present Value for Forecast Period $ 7,523 Terminal Value = ($ 1,725 x 1. 02) / (. 14 – . 02) = 14,663 Value of Non Operating Assets 500 Total Value of Arbor 22,686 Less Value of Debt( 2,800) Value of Equity 19,886 Shares Outstanding 3,000 Value per Share$ 6. 63 Special Problems Before we leave valuations, we should note some special problems that can influence the valuation calculation. Private Companies: When valuing a private company, there is no marketplace for the private company. This can make comparisons and other analysis very difficult. Additionally, complete historical information may not be available. Consequently, it is common practice to add to the discount rate when valuing a private company since there is much more uncertainty and risk. Foreign Companies: If the target company is a foreign company, you will need to consider several additional variables, including translation of foreign currencies, differences in regulations and taxes, lack of good information, and political risk. Your forecast should be consistent with the inflation rates in the foreign country. Also, look for hidden assets since foreign assets can have significant differences between book values and market values. Complete Control: If the target company agrees to relinquish complete and total control over to the acquiring firm, this can increase the value of the target. The value assigned to control is expressed as: CV = C + M CV: Controlling Value C: Maximum price the buyer is willing to pay for control of the target company M: Minority Value or the present value of cash flows to minority shareholders. If the merger is not expected to result in enhanced values (synergies), then the acquiring firm cannot justify paying a price above the minority value. Minority value is sometimes referred to as stand-alone value. Chapter 6 Post Merger Integration We have now reached the fifth and final phase within the merger and acquisition process, integration of the two companies. Up to this point, the process has focused on putting a deal together. Now comes the hard part, making the merger and acquisition work. If we did a good job with due diligence, we should have the foundation for post merger integration. However, despite due diligence, we will need to address a multitude of issues, such as: ? Finalizing a common strategy for the new organization. We need to be careful not to impose one strategy onto the other company since it may not fit. ? Consolidating duplicative services, such as human resources, finance, legal, etc. ? Consolidating compensation plans, corporate policies, and other operating procedures. ? Deciding on what level of integration should take place. ? Deciding on who will govern the new organization, what authority people will have, etc. It is ironic that in many cases, senior management is actively involved in putting the merger together, but once everything has been finalized, the job of integrating the two companies is dumped on middle level management. Therefore, one of the first things that should happen within post merger integration is for senior management to: ? Develop an overall plan for integrating the two companies, including a time frame since synergy values need to be recovered quickly. If synergy values are dependent upon the target's customers, markets, assets, etc. , then a fast integration process should be planned. If expected synergies come from strategies and intellectual capital of the target, a more cautious approach to integration may be appropriate. ? Directing and guiding the integration process, establishing governance, and assigning project managers to integration projects. ? Leading change through great communication, bringing people together, resolving issues before they magnify, establishing expectations, etc. Once the two companies announce their merger, an entire set of dynamics goes into motion. Uncertainty and change suddenly impact both companies. Several issues need to be managed to prevent the escape of synergy values. Managing the Process The integration of two companies is managed within a single, centralized structure in order to reduce duplication and minimize confusion. A centralized structure is also needed to pull everything together since the integration process tends to create a lot of divergent forces. A Senior Project Team will be responsible for managing post merger integration (PMI). This includes things like coordination of projects, assigning task, providing support, etc. As previously indicated, it is important for both senior management and middle management to share in the integration process: Senior ManagementSenior Project Team Cultural & Social IntegrationFunctional Integration Strategic Fit between the CompaniesSelection of Best Practices CommunicationSet up Task Forces Identify Critical Issues Problem Solving The Senior Project Team will consist of representatives from both companies, covering several functional areas (human resources, marketing, operations, finance, etc. ). Team members should have a very strong understanding of the business since they are trying to capture synergy values throughout PMI. Special task forces will be established by the Senior Project Team to integrate various functions (finance, information technology, human resources, etc. ). Task forces are also used to address specific issues, such as customer retention, non-disruption of operations, retention of key personnel, etc. Task forces can create sub-teams to split an issue by geographic area, product line, etc. All of these teams must have a clear understanding of the reasons behind the merger since it is everybody's job to capture synergies. There is no way senior management can fully identify all of the expected synergies from a merger and acquisition. It is not unusual for some task forces to begin meeting before the merger is announced. If integration begins before announcement of the merger, team members will have to act in a confidential manner, exercising care on who they share information with. The best approach is to act as though a merger will not take place. Example 17 – Timeline leading up to Post Merger Integration (PMI) June 21, 1998: Officers from both companies plan post merger integration. July 17, 1998: Orientation meeting for key management personnel from both companies. July 30, 1998: Project Managers are assigned to Task Forces. August 16, 1998: Launch Task Forces. August 27, 1998: Critical Issues are identified by Task Forces. Set goals and time frames. October 26, 1998: Task Force develops detail plan for PMI. October 30, 1998: Reach consensus on final plan. November 6, 1998: Officers from both companies approve detail integration plans. November 11, 1998: Operating (action steps) are outlined for implementing the PMI Plan. January 17, 1999: Begin Post Merger Integration Example 18 – Outline for Post Merger Integration (PMI) by Senior Task Force or Senior Project Team 1. Assess current situation – where do we stand? 2. Collect information and identify critical issues for integration. 3. Develop plans to resolve critical issues. 4. Obtain consensus and agree on PMI Plan. 5. Train personnel, prepare for integration, work out logistics, map out the process, etc. 6. Implement PMI Plan – conduct meetings, setup teams, provide direction, make key decisions, etc. 7. Revise the PMI Plan – measure and monitor progress, make adjustments, issue progress reports to executive management, etc. . Delegate – Move the integration process down into lower levels of the organization, allow staff personnel to control certain integration decisions, etc. 9. Complete – Move aggressively into full integration, coordinate and communicate progress until integration is complete. Decision Making Post merger integration (PMI) will require very quick decision-making. This is due in part to the fact that fast integration's work better than slow integration's. The new organization has to be established quickly so people can get back to servicing customers, designing products, etc. The more time people spend thinking about the merger, the less likely they will perform at high levels. Many decisions within PMI will be difficult, such as establishing the new organizational structure, re-assigning personnel, selling-off assets, etc. However, it is necessary to get these decisions behind you as quickly as possible since the synergy meter is running. In addition, failure to act will leave the impression of indecisiveness and inability to manage PMI. In order to make decisions, it is necessary to define roles; people need to know who is in charge. People who are responsible for integration should be highly skilled in coordinating projects, leading people, and thinking on their feet while staying focused on the strategies behind the merger and acquisition. People Issues Productivity and performance will usually drop once a merger is announced. The reason is simple; people are concerned about what will happen. In the book The Complete Guide to Mergers and Acquisitions, the authors note that â€Å"at least 360,000 hours of lost productivity can be lost during an acquisition of just a thousand person operation. † Quick and open communication is essential for managing people issues. Constant communication is required for addressing the rumors and questions that arise within PMI. People must know what is going on if they are expected to remain focused on their jobs. Communication should be deep and broad, reaching out to as many people as possible. Face to face communication works best since there is an opportunity for feedback. Even cursory communication is better than no communication at all. â€Å"Get all the facts out. Give people the rationale for change, laying it out in the clearest, most dramatic terms. When everybody gets the same facts, they'll generally come to the same conclusion. Only after everyone agrees on the reality and resistance is lowered can you get buy-in to the needed changes. † – Jack Welch, CEO, General Electric It is also a good idea to train people in change management. Most people will lack the knowledge and skills required for PMI. Immediately after the merger is announced, key personnel should receive training in how to manage change and make quick decisions. People must feel competent about their abilities to pull off the integration. Managing Resistance The failure to manage resistance is a major reason for failed mergers. Resistance is natural and not necessarily indicative of something wrong. However, it cannot be ignored. Four important tools for managing resistance are: Communicate: As we just indicated, you have to make sure people know what is going on if you expect to minimize resistance. Rumors should not be the main form of communication. The following quote from a middle level manager at a meeting with executive management says it all: â€Å"How can I tell my people what needs to be done to integrate the two companies, when I have heard nothing about what is going on. † Training: As we just noted, people must possess the necessary skills to manage PMI. Investing in people through training can help achieve â€Å"buy-in† and thus, lower resistance. Involvement: Resistance can be reduced by including people in the decision making process. Active engagement can also help identify problem areas. Alignment: One way to buffer against resistance is to align yourself with those people who have accepted the merger. Ultimately, it will be the non-resistors who bring about the integration. Do not waste excessive resources on detractors; they will never come around. Closing the Cultural Gap One of the biggest challenges within PMI is to close the cultural divide between the two companies. Cultural differences should have been identified within Phase II Due Diligence. One way of closing the cultural gap is to invent a third, new corporate culture as opposed to forcing one culture onto another company. A re-design approach can include: ? Reducing the number of rules and policies that control people. In today's empowered world, it has become important to unleash the human capacities within the organization. ? Create a set of corporate policies centered around the strategic goals and objectives of the new organization. ? Implement new innovative approaches to human resource management, such as the 360-degree evaluation. Eliminate various forms of communication that continue with the â€Å"old way† of doing things. ? Re-enforce the new ways with incentive programs, rewards, recognition, special events, etc. Specific Areas of Integration As we move forward with the integration process, a new organizational structure will unfold. There will be new reporting structures based on the needs of the new company. Structures are built around workflows. For best results, collaboration should take place between the two companies; mixing people, combining offices, sharing facilities, etc. This collaboration helps pull the new organization together. As noted earlier, a centralized organization will experience less difficulty with PMI than a decentralized organization. Collaboration is also enhanced when there are: ? Shared Goals – The more common the goals and objectives of the two companies, the easier it is to integrate the two companies. ? Shared Cultures – The more common the cultures of the two companies, the easier the integration. ? Shared Services – The closer both company's can come to developing a set of shared services (human resource management, finance, etc. ), the more likely synergies can be realized through elimination of duplicative services. Many functional areas will have to be integrated. Each will have its own integration plan, led by a Task Force. Two areas of concern are compensation and technologies. Compensation Plans: It is important to make compensation plans between the two companies as uniform as possible. Failure to close the compensation gap can lead to division within the workforce. Compensation plans should be designed based on a balance between past practices and future needs of the company. Since lost productivity is a major issue, compensation based on performance should be a major focus. Technologies: When deciding which information system to keep between the two companies, make sure you ask yourself the following questions: ? Do we really need this information? ? Is the information timely? ? Is the information accurate? ? Is the information accessible? One of the misconceptions that may emerge is to retain the most current, leading-edge technology. This may be a mistake since older legacy systems may be well tested and reliable for future needs of the organization. If both systems between the two companies are outdated, a whole new system may be required. Retaining Key Personnel Mergers often result in the loss of key (essential) personnel. Since synergies are highly dependent upon quality personnel, it will be important to take steps for retaining the high performers of the Target Company. The first step is to identify key personnel. Ask yourself, if these people were to leave, what impact would it have on the company? For example, suppose a Marketing Manager decided to resign, resulting in the loss of critical customers. Other people may be critical to strategic thinking and innovation. Once you have a list of key personnel, the next step is to determine what motivates essential personnel. Some people are motivated by their work while others are interested in climbing the corporate ladder. Retention programs are designed around these motivating factors. The third step is to implement your retention programs. Personally communicate with key personnel; let them know what their position will be in the new company. If compensation is a motivating factor, offer key personnel a â€Å"stay† bonus. If people are motivated by career advancement, invite them to important management meetings and have them participate in decision making. Don't forget to reinforce retention by recognizing the contributions made by key personnel. It is also a good idea to recruit key personnel just as if you would recruit any other key management position. This solidifies the retention process. Finally, you will need to evaluate and modify retention programs. For example, if key people continue to resign, then conduct an exit interview and find out why they are leaving. Use this information to change your retention programs; otherwise, more people will be defecting. Retaining Customers Mergers will obviously create some disruptions. One area where disruptions must be minimized is customer service. Once a merger is announced, communicate to your customers, informing them that products and services will not deteriorate due to the merger. Additionally, employees directly involved with customer service cannot be distracted by the merger. If customers are expected to defect, consider offering special deals and programs to reinforce customer retention. As a minimum, consider setting up a customer hotline to answer questions. Finally, do not forget to communicate with vendors, suppliers, and others involved in the value chain. They too are your customers. Measuring PMI The last area we want to touch on is measurement of post merger integration (PMI). Results of the integration process need to be captured and measured so that you can identify problem areas and make corrections. For example, are we able to retain key personnel? How effective is our communication? We need answers to these types of questions if we expect success in PMI. One way of ensuring feedback is to retain the current measurement systems that are in place; especially those involved with critical areas like customer service and financial reporting. Day to day operations will need to be monitored for sudden changes in customer complaints, return merchandise, cancelled orders, production stoppages, etc. New measurements for PMI will have to be simple and easy to deploy since there is little time for formal design. For example, in one case the PMI relied on a web site log to capture critical data, identify synergy projects, and report PMI progress. On-line survey forms were used to solicit input and identify problem areas. A clean and simple approach works best. A measurement system starts with a list of critical success factors (CSF) related to PMI. These CSF's will reflect the strategic outcomes associated with the merger. For example, combining two overlapping business units might represent a CSF for a merger. From these CSF's, we can develop key performance indicators. Collectively, a complete system known as the Balanced Scorecard can be used to monitor PMI. Process leaders are assigned to each perspective within the scorecard, collecting the necessary data for measurement. Example 19 – Balanced Scorecard for Post Merger Integration (PMI) PerspectiveKey Performance Indicator Customers- Retention of Existing Customers – Efficiency in Delivering Services Financial- Synergy Components Captured to Date â€Å"- Timely Financial Reporting â€Å"- Timely Cash Flow Management Operational- Completion of Systems Analysis â€Å"- Reassignments to all Operating Units â€Å"- Resources Allocated for Workloads Human Resource- Percentage of Personnel Defections â€Å"- Change Management Training â€Å"- Communication Fe edbacks Organizational- Cultural Gaps between company's â€Å"- Number of Critical Processes Defined â€Å"- Lower level involvement in integration Chapter 7 Anti-Takeover Defenses Throughout this entire short course (parts 1 & 2), we have focused our attention on making the merger and acquisition process work. In this final chapter, we will do just the opposite; we will look at ways of discouraging the merger and acquisition process. If a company is concerned about being acquired by another company, several anti-takeover defenses can be implemented. As a minimum, most companies concerned about takeovers will closely monitor the trading of their stock for large volume changes. Poison Pills One of the most popular anti-takeover defenses is the poison pill. Poison pills represent rights or options issued to shareholders and bondholders. These rights trade in conjunction with other securities and they usually have an expiration date. When a merger occurs, the rights are detached from the security and exercised, giving the holder an opportunity to buy more securities at a deep discount. For example, stock rights are issued to shareholders, giving them an opportunity to buy stock in the acquiring company at an extremely low price. The rights cannot be exercised unless a tender offer of 20% or more is made by another company. This type of issue is designed to reduce the value of the Target Company. Flip-over rights provide for purchase of the Acquiring Company while flip-in rights give the shareholder the right to acquire more stock in the Target Company. Put options are used with bondholders, allowing them to sell-off bonds in the event that an unfriendly takeover occurs. By selling off the bonds, large principal payments come due and this lowers the value of the Target Company. Golden Parachutes Another popular anti-takeover defense is the Golden Parachute. Golden parachutes are large compensation payments to executive management, payable if they depart unexpectedly. Lump sum payments are made upon termination of employment. The amount of compensation is usually based on annual compensation and years of service. Golden parachutes are narrowly applied to only the most elite executives and thus, they are sometimes viewed negatively by shareholders and others. In relation to other types of takeover defenses, golden parachutes are not very effective. Changes to the Corporate Charter If management can obtain shareholder approval, several changes can be made to the Corporate Charter for discouraging mergers. These changes include: Staggered Terms for Board Members: Only a few board members are elected each year. When an acquiring firm gains control of the Target Company, important decisions are more difficult since the acquirer lacks full board membership. A staggered board usually provides that one-third are elected each year for a 3 year term. Since acquiring firms often gain control directly from shareholders, staggered boards are not a major anti-takeover defense. Super-majority Requirement: Typically, simple majorities of shareholders are required for various actions. However, the corporate charter can be amended, requiring that a super-majority (such as 80%) is required for approval of a merger. Usually an â€Å"escape clause† is added to the charter, not requiring a super-majority for mergers that have been approved by the Board of Directors. In cases where a partial tender offer has been made, the super-majority requirement can discourage the merger. Fair Pricing Provision: In the event that a partial tender offer is made, the charter can require that minority shareholders receive a fair price for their stock. Since many states have adopted fair pricing laws, inclusion of a fair pricing provision in the corporate charter may be a moot point. However, in the case of a two-tiered offer where there is no fair pricing law, the acquiring firm will be forced to pay a â€Å"blended† price for the stock. Dual Capitalization: Instead of having one class of equity stock, the company has a dual equity structure. One class of stock, held by management, will have much stronger voting rights than the other publicly traded stock. Since management holds superior voting power, management has increased control over the company. A word of caution: The SEC no longer allows dual capitalization's; although existing plans can remain in effect. Recapitalizations One way for a company to avoid a merger is to make a major change in its capital structure. For example, the company can issue large volumes of debt and initiate a self-offer or buy back of its own stock. If the company seeks to buy-back all of its stock, it can go private through a leveraged buy out (LBO). However, leveraged recapitalizations require stable earnings and cash flows for servicing the high debt loads. And the company should not have plans for major capital investments in the near future. Therefore, leveraged recaps should stand on their own merits and offer additional values to shareholders. Maintaining high debt levels can make it more difficult for the acquiring company since a low debt level allows the acquiring company to borrow easily against the assets of the Target Company. Instead of issuing more debt, the Target Company can issue more stock. In many cases, the Target Company will have a friendly investor known as a â€Å"white squire† which seeks a quality investment and does not seek control of the Target Company. Once the additional shares have been issued to the white squire, it now takes more shares to obtain control over the Target Company. Finally, the Target Company can do things to boost valuations, such as stock buy-backs and spinning off parts of the company. In some cases, the target company may want to consider liquidation, selling-off assets and paying out a liquidating dividend to shareholders. It is important to emphasize that all restructurings should be directed at increasing shareholder value and not at trying to stop a merger. Other Anti Takeover Defenses Finally, if an unfriendly takeover does occur, the company does have some defenses to discourage the proposed merger: 1. Stand Still Agreement: The acquiring company and the target company can reach agreement whereby the acquiring company ceases to acquire stock in the target for a specified period of time. This stand still period gives the Target Company time to explore its options. However, most stand still agreements will require compensation to the acquiring firm since the acquirer is running the risk of losing synergy values. 2. Green Mail: If the acquirer is an investor or group of investors, it might be possible to buy back their stock at a special offering price. The two parties hold private negotiations and settle for a price. However, this type of targeted repurchase of stock runs contrary to fair and equal treatment for all shareholders. Therefore, green mail is not a widely accepted anti-takeover defense. 3. White Knight: If the target company wants to avoid a hostile merger, one option is to seek out another company for a more suitable merger. Usually, the Target Company will enlist the services of an investment banker to locate a â€Å"white knight. † The White Knight Company comes in and rescues the Target Company from the hostile takeover attempt. In order to stop the hostile merger, the White Knight will pay a price more favorable than the price offered by the hostile bidder. 4. Litigation: One of the more common approaches to stopping a merger is to legally challenge the merger. The Target Company will seek an injunction to stop the takeover from proceeding. This gives the target company time to mount a defense. For example, the Target Company will routinely challenge the acquiring company as failing to give proper notice of the merger and failing to disclose all relevant information to shareholders. 5. Pac Man Defense: As a last resort, the target company can make a tender offer to acquire the stock of the hostile bidder. This is a very extreme type of anti-takeover defense and usually signals desperation. One very important issue about anti-takeover defenses is valuations. Many anti-takeover defenses (such as poison pills, golden parachutes, etc. ) have a tendency to protect management as opposed to the shareholder. Consequently, companies with anti-takeover defenses usually have less upside potential with valuations as opposed to companies that lack anti-takeover defenses. Additionally, most studies show that anti-takeover defenses are not successful in preventing mergers. They simply add to the premiums that acquiring companies must pay for target companies. Proxy Fights One last point to make about changes in ownership concerns the fact that shareholders can sometimes initiate a takeover attempt. Since shareholders have voting rights, they can attempt to make changes within a company. Proxy fights usually attempt to remove management by filling new positions within the Board of Directors. The insurgent shareholder(s) will cast votes to replace the current board. Proxy fights begin when shareholders request a change in the board. The next step is to solicit all shareholders and allow them to vote by â€Å"proxy. † Shareholders will send in a card to a designated collector (usually a broker) where votes are tallied. Some important factors that will influence the success of a proxy fight are: 1. The degree of support for management from shareholders not directly involved in the proxy fight. If other shareholders are satisfied with management, then a proxy fight will be difficult. 2. The historical performance of the company. If the company is starting to fail, then shareholders will be much more receptive to a change in management. 3. A specific plan to turn the company around. If the shareholders who are leading the proxy fight have a plan for improving performance and increasing shareholder value, then other shareholders will probably support the proxy fight. Proxy fights are less costly than tender offers in changing control within a company. However, most proxy fights fail to remove management. The upside of a proxy fight is that it usually brings about a boost in shareholder value since management is forced to act on poor performance. It is worth noting that proxy fights are sometimes led by former managers with the Target Company who recognize what needs to be done to turn the company around. In any event, studies clearly show that changes in management are much more likely to occur externally (tender offers) as opposed to internally (proxy fights). Course Summary A merger is like a marriage; the two partners must be compatible. Each side should add value so that together the two are much stronger. Unfortunately, many mergers fail to work. Overpaying for the acquisition is a common mistake because of an incomplete valuation model. Therefore, it is essential to develop a complete valuation model, including analysis under different scenarios with recognition of value drivers. A good starting point for determining value is to extend the Discounted Cash Flow Model since it corresponds well to market values. Core value drivers (such as free cash flows) should be emphasized over traditional type earnings (such as EBITDA). Some key points to remember in the valuation process include: 1. Most valuations will focus on valuing the equity of the Target Company. 2. The discount rate used should match-up with the associated risk of cash flows. . The forecast should focus on long-term cash flows over a period of time that captures a normal operating cycle for the company. 4. The forecast should be realistic by fitting with historical facts. 5. A comprehensive model is required based on an understanding of what drives value for the company. 6. The final forecast should be tested against independent sources. If pre merger pha ses are complete, we can move forward to integrate the two companies. This will require the conversion of information systems, combining of workforces, and other projects. Many failures can be traced to people problems, such as cultural differences between the companies, which can lead to resistance. Additionally, if you fail to retain key personnel, the integration process will be much more difficult. The best defense against personnel defections is to have a great place to work. If the company has a bad reputation as an employer, then defections will surely occur. Some of the risk factors associated with post merger integration are: 1. What level of integration do we implement? 2. What can we do to retain key personnel? 3. How serious are the cultural differences between the companies? . What kinds of conflicts and competition can we expect during integration? 5. To what extent do the people of both company's understand the merger? 6. Who will govern and control the new company? Success with post merger integration is improved when: 1. The two companies have a history of effective planning and strategizing. 2. The two companies have a history of succ essful change management. 3. The merger will improve the strategies