TOPIC ANALYSIS OF THE REASONS BEHIND TAKEOVERS AND THE METHODS BY WHICH SUCH TAKEOVERS MAY HAVE TAKE PLACE TOGETHER WITH THE POTENTIAL EFFECTS OF A TAKEOVER Introdcution: Jebb Plc wants to takeover a rival company in which they believe will be successful in increasing the wealth of shareholders. Due to understanding of limited fund, managers of Jebb PLC are going to raise money through increasing debts in order to acquire target’ firm. As a senior financial manager in Jebb PLC, I have to prepare a report to analysis reasons behind takeovers and the methods by which such takeovers may take places together with the potential effects of a takeover. Then, I will give four method of investment appraisal to evaluated and rank potential investment opportunities and their merits and limitation. Moreover, the nature of gearing and potential effected of high gearing on perceived risk and cost of capital. Analysis of the reasons behind takeovers and the methods by which such takeovers may have take place together with the potential effects of a takeover. ‘Takeover’ is referring to transfer of control of a firm from one group of shareholders to another group of shareholders. It is a change in the controlling interest of corporation, either through a friendly acquisition or unfriendly, hostile, bid. A hostile takeover with the aim of replacing current existing management is usually attempted through a public tender offer. (asia.advfn.com) Next following below I will give reasons for takeover company. ã Defensive. Some acquisitions take place because the buyer is itself the target of another company, and simply wants to make itself less attractive through acquisition. ã Intellectual property includes patents, trademarks, production processes, and databases. This is defensible knowledge base that gives a company a competitive advantage, and is one of the best reasons to acquire a company. ã International alternative. A company may have an extremely difficult time creating new products. And so looks elsewhere to find replacement products. This issue is especially likely to trigger an acquisition of a company has just decided to cancel an in-house development project, and needs a replacement immediately. ã Market growth. Buyer can not grow revenues quickly in a slow-growth market, because there have few sales to be made. In contrast, a target company may be suitable in a market that is growing faster than the buyer itself. Hence, the buyer can see rapid growth when acquire target Company. ã Market share. In general, companies all look toward a high market share, because it allows them to have advantage in price competitive. The acquisition of a large competitor is a reasonable way to quickly attain significant market share. ã Production capacity. The buyer may have excess production capacity available, from which it can readily manufacture the target’s products. Moreover, the target company may have an excellent product that the buyer can use to fill a hold in its own product line. This is an especially important reason when the market is expanding rapidly, and the buyer does not have time to develop its product before others compete and take over the market. Table content Introduction I-Analysis of the reasons behind takeovers and the methods by which such takeovers may have take place together with the potential effects of a takeover II- The method of investment appraisal which may be applied to evaluated and rank potential investment opportunities and their relative merits and limitations 1-Payback period 2-Accounting rate of return 3-Net present value 4- Internal rate of return III- The nature of gearing and the potential effects of high gearing on perceived risk and cost of capital IV- Conclusion Appendix Reference