Current Issues in Finance Essay Example | Topics and Well Written Essays - 3500 words

Current Issues in Finance - Essay Example As the paper highlights not to miss mentioning is the news of UK Prudential closing $35.5B takeover bid of AIG Asian due to pressure from the shareholders to lower the bid asking rate by $30B. Market was not in favor of clinching the deal, as after cancelling the deal, Prudential’s shares rose by 6.3% on Tuesday. At the same time, the ending of the takeover bid was a blow to the AIG efforts to pay back the loan of $132 billion to the Treasury from the proceeds of the sale to Prudential, which was taken to save the AIG from collapsing from the financial crisis in 2008. This discussion outlines that there could be a number of reasons attributed to a merger or acquisition wherein payment is made through stock. Companies are acquired with the aim of safer income streams, as cost of debt could be very high and banks won’t be forthcoming with the offer of reduced rate of interests. Mergers where price/earning ratio (P/E) is very high are not welcomed because of the fear of loss of income over share price. If a company’s stocks are an all-time high, in stead of paying cash it offers its new stock shares. But sometimes it becomes all the more difficult for the buyer company to evaluate the target company as the stock price of the target company rises due to the possibility of merger bid. Answers to the above questions can be reached at by analysing the cases of acquisitions and mergers in the literature in the recent past on the financial and valuation aspects of such acquisitions and mergers. There could be number of motives behind an acqui sition. Diversification in a different line of business has been an aim to be achieved through acquisition.