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Royal Dutch Shell Merger Analysis

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One of the most significant parts of a takeover strategy is the financing of the acquisition. The method of payment plays a significant role in all investments including mergers and acquisitions. It is an indication of whether the investment decision is feasible or not. The three most commonly used methods to make payments to targets are in cash, stock or a combination of cash and stock. This sections analyses each method of financing an acquisition. It looks into the acquisition between Royal Dutch Shell Plc and BG Group Plc. where the acquirer is Shell and target company is BG and aims at determing the most desirable method of payment from the perspective of Shell.
The first method of payment is through cash. The equity portion in the balance …show more content…

Be that as it may, in the meantime, the acquiring company gets the greater part of the assets and liabilities of the target firm, in this way roughly killing the impacts of the dilution. Should the merger demonstrate beneficial and give adequate synergy, the present shareholders will gain over the long run from the additional appreciation given by the assets of the target firm.
However, an all stock option is not the most desirable form of financing an acquisition.
The third option that Shell can consider would be a combination of cash and stock. Mergers and acquisitions are basically associated with the concept of buying, selling or combining different companies for the purpose of expansion and growth for the companies. As we all know there are two ways we can acquire a target- either by cash or by stock or a combination of both. Well, transfers of ownership by cash are very straight forward and clear for the two parties involved in this transaction. While payment using stock options will be given to the acquired company at a ratio equivalent to the amount they are being acquired …show more content…

There are other potential bidders in the market and according to the bidder they choose, the form of payment will be decided. If the acquirer chooses to pay in form of cash, the risk of the fluctuation that might occur in the returns is completely eliminated. The payment of the real value is done. On the other hand, if the acquirer chooses to transact using shares, alterations will take place in the buyer’s capital structure and the control in the firm. As the capital structure changes, there is a definite effect on the balance sheet of the company. There is financial flexibility by using stock. Payment solely by stock might reduce the profitability ratio of the company and if it is by cash, the company will show higher liquidity ratio. Not all firms have liquid cash to complete the transaction so they deal by involving both cash and stock as the risk will be divided and hence it is the most attractive method of financing the

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