Financing an acquisition and/or merger

Authors Avatar


One of the issues presented in the Lester Electronic scenario is that while LEI is preparing to begin a joint venture with Shang-wa, they need to determine a suitable method in financing their merger.  To begin their financial planning, LEI must establish guidelines for change in the firm (Ross, 2005). These guidelines should include an identification of the firm’s financial goals, an analysis of the differences between these goals and the current financial status of the firm, and a statement of the actions needed for the firm to achieve its financial goals (Ross, 2005). Working capital measures how much in liquid assets a company has available to build its business. Companies that have a great deal of working capital will be more successful in expanding and improving their operations. In order for LEI and Shang-wa to have a successful merger, LEI should work towards reducing working capital. By finding ways to do this, LEI will increase the amount of free cash flow for the company and increase their working capital giving them the  ability to fund future projects or small investments. There are many ways to finance a buyout or merger of a company. This paper will compare and contrast issues that various companies had experienced in financing a merger and/or acquisition.





FedEx is a global transportation and information network that operates in the Air Ground Express Industry.  Thomas Schmitt founded FedEx in 1971, with the original name of Roadway Logistics System with headquarters in Memphis, Tennessee. Today FedEx has more than 290,000 employees, delivers more than 7.5 million shipments in more than 220 countries and territories including every address in the United States.  Operating companies offered by FedEx are FedEx Express, FedEx Ground, FedEx Services and FedEx Freight.   FedEx has done an excellent job keeping up with the advancement and creation of good and services.  FedEx is a multimillion-dollar company doing business in the global transportation and network industry.  

To do this, organizations need a clear idea of the strengths and weaknesses of their existing internal labor force and to set goals for their future.  FedEx has always been able to stay ahead of the competition by continuing to create new top performing products and way to do business.  The announcement of their merger with Kinko’s was no different: FedEx announced in late October that it would be buying out Kinko's for a total of US$2.4 billion in cash. The transaction will happen sometime in the first part of 2004, and FedEx is expected to profit greatly from the purchase. Kinko's, a privately held company, will report a $2 million profit this year, with more than 50% of that revenue coming from digitally transmitted documents.  “The weighted average cost of capital is a very essential and important factor in firms panning to take on the debt or gain of another firm.  WACC is a calculation of a firms cost of capital in which each category is proportionately weighted, this includes all capital sources, common stock, preferred stock and bonds as well as any other long-term debt” (Ross, 2005).  “Broadly speaking, a company’s assets are financed by either debt or equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances.   Firm's WACC is the overall required return on the firm as a whole and, as such, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers”(, 2008).

Since their merger in 2004, FedEx-Kinko’s expects to provide strategic leadership and consolidated financial reporting for the FedEx family of companies, managing a broad portfolio of transportation, e-commerce and business services.  With this merger FedEx has long-term goals to grow their revenue by 10% per year, increase cash flows, increase returns and do this all by achieving a 10%+ operating margin.  According to FedEx they have plans for successful growth strategies to grow their business, and fourth quarter reporting shows that they are currently operating under revenues totaling 9.87 billion, operating loss of 163 million.  Taking all this into consideration FedEx capital spending for the year of 2008 totaled 2.9 billion and expects to have some difficulties due to high fuel prices and the economy.  


MetroPCS formerly known as General Wireless Inc has been in existence since 1996 with headquarters in Dallas, TX.  MetroPCS realizes that the telecommunications industry has become one of fast rising industries and changes come quick.  In order to keep up with the changes while satisfying their customers MetroPCS has continued to think of innovative ways of doing business.  Since their innovative launch in 2002 MetroPCS has seen a 30% overall growth in customers.  “Beta and Leverage are in relation between the beta of the common stock and the leverage of the firm in a world without taxes” (Ross, 2005).  What this really means is that it is a very important factor for management to realize the factors that go into what a firms risk are in accepting new projects.  The higher the financial leverage the higher the risk to the firm.  There are two kinds of beta, asset, and equity that are taken into consideration when considering accepting this kind of challenge.  MetroPCS took advantage of an opportunity and as of Jun 2008 has assets totaling $6,078,779.00.  Like MetroPCS, LEI wants to make sure that they are going to reap benefits of a successful merger with Shang-Wa.  Remembering that a lot of different issues affect the way a company is and will be doing business in the near future.  There are ways in which LEI can gain and create the capital needed in order to make this merger complete.  LEI have to realize that they just have to do the adequate amount of research and analysis for it to work in their favor and leave the capital budgeting to management.

Join now!


Every business strives to find the prefect financing mix that optimizes their capital structure. A good capital structure is a balance of relatively higher cost of equity and lower cost of debt. The goal is to fund the company with low costs without putting the company in risk of a financial distress. Below, are two companies that have used various financial mixes to optimize their capital structures.

Viragen International, Inc.

Viragen International, Inc. is a bio-pharmaceutical company that does research, development, manufacture, and commercialization of Multiferon. July, 2007, Viragen  announced ...

This is a preview of the whole essay