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H. J. Heinz M & A Case Solution & Answer

H. J. Heinz M & A Case Solution

The mergers and acquisition required the approval of all shareholders as they have voting power and Heinz announced the approval of merger; if they had not approved, then the company would have faced the risk of reversing the termination fees of $ 1.4 billion. This deal is viable for the shareholders, as it will help to enhance each shareholder’s wealth.

Management is very important for every company as it takes care of day-to-day operations. At the time of merger and acquisitions, others were accepting this integration as an economic growth opportunity by optimizing economies of scale. However, the management would be pressurized to terminate non-productive department in order to expand the growth of business. After acquisition, company should not change its management as they were involved in restructuring of business and have expertise and skills to make it a successful business post merger.

Employees, on the other hand, did not posses any right to make a decision regarding the acquisition. During restructuring, the company terminated 2700 unproductive employees and after integration, the company would not terminate old employees in exchange of fresh employees as, the current have ability, expertise, and experience to run operations. In addition, the company would face difficulty in running the operations as well as, the company should hire the terminated employees by providing them incentive.

 The citizens of Pittsburgh are external stakeholders that are main reason for the company’s production and services that affects the economy when demand by citizens change. After integration, the citizens demanded that the operations should stay in the pre-existing location and did not want global expansion for the company. However, the company approved the plans for expansion late

Go-shop is the process that allows target to select a group of buyers to receive different bids from potential buyers of the company for a certain time period, usually less than two months after the contract is signed with initial buyer. This right of potential buyers includes sharing confidential information about the target company and if the offer is better than initial buyer, then it would terminate the merger agreement from the initial buyer and the target company would be charged with some break fee or termination fees from initial buyer.

The go-shop process has many benefits, as it attracts various bids from potential buyers and if it bids higher than initial buyer, then the company can go for higher bid as, it increases the chances of higher impressive bids and selection of competitive deals that reflect the value of Target Company.

Potential risk associated with go-shop process due to uncertain events might take place:

  • The loss of initial buyer as the deal is already signed because of others bid is too low
  • Sharing of confidential information to attract the competitive bid
  • Risk of leaking confidential information
  • More cost required to set the bidding process
  • Time consuming go-shop process
  • Increase in management would cost more

2.            Why investment bankers involved in this transaction and what are are their respective roles?

The investment bankers play an intermediary role, provide advice and information regarding transactions, they have the bulk of market information and utilize it by showing the impact of pre-merger and post-merger scenarios. They charge some amount of fees in exchange of sharing information.

For 3G and Berkshire Hathaway, the investment banks are J.P. Morgan, Lazard, and Wells Fargo that provides external market information and suggestion to carry out the effective integration and try to complete the deal. If the company has not enough cash, then the banks can provide financing through debt to complete the transactions……………….

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