Sonar Merger Analysis

When considering mergers, there are two major motives that would be advantageous from the standpoint of society, those include synergies and tax considerations. The definition of synergy is when two separate companies form a new company and the value of the new company is greater than the value of the individual firms. A merger for synergistic reasons would have to be favorable for shareholders from both individual companies. According to Brigham and Ehrhardt, (2014), “Synergistic mergers should provide value to shareholders from both companies and arise from five sources: (1) operating economies of scale in management, marketing, distribution or production. (2) financial economies, including lower transaction costs and better coverage by security analysts. (3) tax effect, combined firm pays less than individual companies in taxes. (4) differential efficiency, management of the new company can increase value due to one of the firms being weaker, pre-merger (5) increased market power because now less competition in the market (p.868).” Society would benefit from operating and financial economies, allowing for products and services to be sold to society at a value through management efficiency. Management of the newly formed companies, post merger must execute identified

Sonar could repurchase stock in the attempt to push price above what Hubbard’s current tender offer. Sonar’s managers could strongly urge their shareholders to not tender their shares, essentially stating that the offer of cash, bonds, or combination is too low to consider. Sonar could require a super-majority of 75% for merger votes or shareholders could change the capital structure though leveraging, by replacing the equity with debt, making the merger less attractive. (Brigham and Ehrhardt,