St. Joseph’s College of Commerce (Autonomous)
End Semester Examination – April 2011
M.Com – IV Semester
Strategic Financial Management
Duration: 3 Hours Max. Marks: 100
Section – A
I)Answer TEN questions. Each carries 2 marks. (10×2=20)
- What is a Strategy?
- What is the meaning of Cost of Capital?
- What is Demerger?
- What is Ethical Brand Equity?
- What is the meaning of Acquisition?
- What is role of Executive Compensation under value Based Management?
- What is the main objective of BCG Approach?
- What is the meaning of Enterprise Governance?
- What is the meaning of Indexed Stock options?
- Differentiate between EPS & EBIT?
- What is the importance of Market to Book Ratio?
- Explain the acronym CFROI.
Section – B
II)Answer any FOUR questions. Each carries 5 marks. (4×5=20)
- Write a short note on Balanced Score Card.
- Differentiate between MVA & EVA.
- Explain the areas of Value thinking with reference to Mckinsey Approach.
- What are the features of Strategic Financial Management?
- What are the kinds of takeover?
- What are the Ethical Dilemmas faced by a Strategic Financial Manager?
Section – C
III) Answer any THREE questions. Each carries 15 marks. (3×15=45)
- Briefly explain the interface of financial policy & strategic policy.
- Explain the Concept involved in EBITDA.
- What are the different approaches in calculation of Corporate Approach?
- What are the factors affecting Dividend Policy?
- What are the strategies used against anti-take over bids.
Section – D
- IV) Compulsory
question – Case Study (15 marks)
- Mergers and Acquisition – A Case Study and Analysis of HP-Compaq Merger
HP
It all began in the year 1938 when two electrical engineering graduates from Stanford University called William Hewlett and David Packard started their business in a garage in Palo Alto. In a year’s time, the partnership called Hewlett-Packard was made and by the year 1947, HP was incorporated. The company has been prospering ever since as its profits grew from five and half million dollars in 1951 to about 3 billion dollars in 1981. Starting with manufacturing audio oscillators, the company made its first computer in the year 1966 and it was by 1972 that it introduced the concept of personal computing by a calculator first which was further advanced into a personal computer in the year 1980. The company is also known for the laser-printer which it introduced in the year 1985.
Compaq
The company is better known as Compaq Computer Corporation. This was company that started itself as a personal computer company in the year 1982. It had the charm of being called the largest manufacturers of personal computing devices worldwide. The company was formed by two senior managers at Texas Instruments. The name of the company had come from-“Compatibility and Quality”. The company introduced its first computer in the year 1983 after at a price of 2995 dollars. In spite of being portable, the problem with the computer was that it seemed to be a suitcase. Nevertheless, there were huge commercial benefits from the computer as it sold more than 53,000 units in the first year with a revenue generation of 111 million dollars.
Reasons for the Merger
Carly Fiorina, who became the CEO of HP in the year 1999, had a key role to play in the merger that took place in 2001. She was the first woman to have taken over as CEO of such a big company and the first outsider too. She worked very efficiently as she travelled more than 250,000 miles in the first year as a CEO. Her basic aim was to modernize the culture of operation of HP. She laid great emphasis on the profitable sides of the business. This shows that she was very extravagant in her approach as a CEO. In spite of the growth in the market value of HP’s share from 54.43 to 74.48 dollars, the company was still inefficient. This was because it could not meet the targets due to a failure of both company and industry. HP was forced to cut down on jobs and also be eluded from the privilege of having Price Water House Cooper’s to take care of its audit. So, even the job of Fiorina was under threat. This meant that improvement in the internal strategies of the company was not going to be sufficient for the company’s success. Ultimately, the company had to certainly plan out something different. So, it
was decided that the company would be acquiring Compaq in a stock transaction whose net worth was 25 billion dollars. Initially, this merger was not planned. It started with a telephonic conversation between CEO HP, Fiorina and Chairman and CEO Compaq, Capellas. The idea behind the conversation was to discuss on a licensing agreement but it continued as a discussion on competitive strategy and finally a merger. It took two months for further studies and by September, 2001, the boards of the two companies approved of the merger. In spite of the decision coming from the CEO of HP, the merger was strongly opposed in the company. The two CEOs believed that the only way to fight the growing competition in terms of prices was to have a merger. But the investors and the other stakeholders thought that the company would never be able to have the loyalty of the Compaq customers, if products are sold with an HP logo on it. Other than this, there were questions on the synchronization of the organization’s members with each other. This was because of the change in the organization culture as well. Even though these were supposed to serious problems with respect to the merger, the CEO of HP, Fiorina justified the same with the fact that the merger would remove one serious competitor in the over-supplied PC market of those days. She said that the market share of the company is bound to increase with the merger and also the working unit would double.
Question:
Critically analyse the decision for merger in the above case and put forward your justifications.
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