MERGERS AND ACQUISITIONS - Exercises and Mini- Case Studies Exercises 1. In what respects do merger and acquisition differ? 2. Apart from diversification, explain and justify four motives that Kraft may want to buy Cadbury. Support your reasons with facts. 3. The diversification principle states that diversification is beneficial. Diversification is one of the main justifications managers give when undertaking conglomerate mergers or acquisition. Critically evaluate why the justification is usually invalid notwithstanding the diversification principle. 4. Describe the three ways of structuring corporate merger or acquisition and explain the distinguishing features of each. 5. Explain how acquiring a firm with past losses can be beneficial. 6. Kraft wants to acquire Cadbury and have placed a value of 10.3bn on Cadbury in September 2009. Assuming that if this acquisition should go ahead Kraft could sell an unwanted production plant in Birmingham for 500m. In addition annual savings was estimated by Kraft to have amount to 390.50m as a results of downsizing and consolidation. However immediate redeployment and location of redundant workforce would have costs 1.5bn. The company's weighted average cost of capital (WACC) is assumed to be 15%. Kraft management stated that the motive of acquiring Cadbury is to obtain synergy. On what basis should synergy be determined? Calculate the value of synergy and separately provide impartial impartial advice to both companies