Competition Bikes

In the current business environment, leaders of human resource departments need to formulate clear and convincing cases for mergers. They should influence perception and communication on the rationale for mergers so as to facilitate success following the implementation of mergers. For many companies, acquisitions and mergers represent the means for growth. Combining two or more companies expands the market share for a business. The expanded team gains access to new markets and a wider range of merchandise. The team gains an extra level of control over its supply chain, a scenario which results into cost effectiveness during trading activities. The greater capacity that results from mergers enables the team to compete in an effective manner, thereby expanding its shareholder value (Sherman, 2010).

Although critics do not agree with the rationale of mergers, understanding of such rationales helps them focus on profitable action and decisions. They are motivated into devoting their time and energy to the changes, a situation which facilitates the sustenance of their performances. The resulting enthusiasm guides them towards performances that assure a better future for the company. Merges have enabled companies to become globally competitive. Unlike an acquisition, a merger enables a company to become a technology leader. The merging companies define the expected benefits and how the two teams aim at realizing them. Their managements evaluate all the assumptions with regard to costs, benefits, and risks during the early stages of the merger (Layne, 2008).

Gains from the merger

By merging with Canadian Biking Inc, Competition Bikes Inc stands a chance of enhancing revenue. This results from a couple of factors: the acquisition of new markets, new products, new customers, the development capacity, as well as the marketing muscle. Through sharing of experiences, the companies enhance their customer services and capability, a scenario which facilitates access to additional distribution channels. The enlarged firm acquires the capacity to undertake cross-selling, an activity which enhances profitability.

Following a merge, the expanded experience enhances operations in a cost effective manner. The enhancement ensures that overhead duplication is reduced to the minimum level. The firm perfects its operations in an endeavor to reduce the supply chain, procurement process, distribution, warehousing, and outsourcing. Through a merger, Competition Bikes Inc will be able to take advantage of its strategic positioning. It will be able to assume market leadership and protect its current positioning in the market. The merger between Canadian Biking Inc and Competition Bikes Inc has high chances of success. According to KPMG, mergers raise the companies’ profitability by about 28%.

The preceding discussion indicates the benefits of mergers over acquisitions. With an acquisition, the acquired company is integrated into the business model and culture of the acquiring one. As such, much of its market and trading experiences are lost. It is good business practice to merge the companies as equal parties so as to take full advantage of their positions before the merger. The merger agreement should provide the direction of the company for the next few years. With the Canadian Biking Inc and Competition Bikes Inc, the merging should be guided by the figures that have been obtained from their financial statements and any additional information that may be forwarded for reviewing. Such information facilitates the development of ratio and percentage analysis which is, consequently, utilized in the preparation of the merging report.

During the merging process, all the administrative expenses should be geared towards the generation of income. In most instances, the management of a company has more command with regard to administrative expenses than to any other type of cost. For instance, during the periods when sales figures drop, the management demonstrates the ability to cut on the administrative expenses more easily than on any other category of expense. Examples of administrative costs include meeting and travel allowances, office supplies, annual meetings, and expenses on the acquisition of market information (Gaughan, 2010).

Capital Structure

While considering the opportunity of expansion into the Canadian market, Competition Bikes Inc should assess its present financial position. This would enable the company to utilize some of the best methods of finance in the expansion. The management needs to examine the available options carefully so as to address the expansion in the best way possible. In this case, the following strategies would suit the current situation, i.e. the merger between Canadian Biking Inc and Competition Bikes Inc, in line with the existing conditions in the market. The timeline under consideration is 5 years as the merger is to take place between the 9^th and 13^th year of Competition Bikes Inc’s operations. The initial task would be to locate $500,000 for the process.

Consequently, the merging team needs to access a bank loan which, in this case, requires an interest rate of 6% and a compensating balance of 150,000 dollars at 1%. Additionally there is a funding through Bonds which are offered at 9%. Consequently, there is an issuing combination rating 50%, Preferred Stock, and 50% common stock. Although each of the above strategies has associated drawbacks, it would be advisable to drop the option of a bank loan. This is because of the requirement of $150,000 minimum balance that receives a 1 percent returns. As par TVM equations, investing the $ 150,000 in another way might be more profitable that meeting the minimum amount requirement for a bank loan. As such, it would be beneficial to consider one of the other two options.