Rabadon, Vennyse B.

Darlon B. Serenio

AC517 4:30- 6:00pm

Mr.

Finance Articles: Analysis

Article: Merger of SM property units eyed

Let me define first merger, it is the combination of two or more

firms to form a single firm, that is according to our book. It is also stated
there the reasons or the factors why firms would like to merge. Enumerated
in the books are 6 reasons, these are, synergies, tax considerations,
purchase of assets below their replacement cost, diversification, managers
personal Incentives and the breakup value. Among these reasons, I would
like to point out the tax considerations.
According to the article;
SM prime recently reported a 16-percent growth in its 2012 net profit to
10.53 billion on the back of revenues from new and existing malls including
those in mainland china. The company said it exceeded the mainland china.
In our book, the reason why tax considerations became a factor
whether you should acquire a company is that when you are a profitable firm
and you will acquire a firm with large accumulated tax losses, these losses
could then be turned into immediate tax savings rather than carried forward
and used in the future(Page 663). The situation is contradicting the part of
considering the taxes, as what the article said SMDC and SM Prime are
publicly listed companies and part of the countrys benchmark Philippine
Stock Exchange index and their income is even growing until now.
So, if Im part of the SM group I will not consolidate SM Developing
Corp. and SM Prime Holdings into a single publicly listed entity and huge
income means huge taxes.

Article: Victorias Milling plans diversification

Diversification strives to smooth out unsystematic risk events in

a portfolio so that the positive performance of some investments
will neutralize the negative performance of others. Victoria Milling plans to
diversify; they want to extend their business activities by investing. In ac513,
it was discussed that the portfolios total risk can be divided into two parts,
diversifiable risk and market risk. Diversifiable risks can be eliminated by
adding stocks(Page 197), therefore invest in other business activities.
Diversification is reducing the companys risk, diversifying into safer fixed
income asset may reduced risk and maximize return.
It is better for the company to invest in other business activities
in order to protect their capital, by allocating money to different investments.
Ive made some researched regarding diversification, it says helps protect
your capital from the wild swings of the market, while achieving long-term
growth at the same time, also diversification is not a guarantee that you will
always make money but it is to minimize losses; therefore it is to stabilize
earnings. Companies need to stabilize their earnings because volatile
earnings pay more taxes than stable companies do. Stabilization of earnings
is certainly beneficial to employees, suppliers and customers; but its value is
less certain from the stand point of the stockholders (Page 663). If I am the
owner of the company I would like also to diversify the business.

Article: SMC redeems $259.3 M in convertible bonds

Convertible securities are bonds or preferred stocks that under

specified terms and conditions can be exchanged for common stock at the
option of the holder. The SMC redeemed the $259.3 M convertible bonds
which might be a great step in their business. It is because when you issue
convertible bonds you will have more common stocks instead of debt; it does
not provide a capital. By reducing the debt it will improve the firms financial
strength and make it easier to raise additional capital. But converting bonds
means more common stocks and more shareholders. Therefore you need to
declare more dividends than before.
There are good sides and bad sides of issuing convertible bonds;
one of several advantages of this delayed method of equity financing is a
delayed dilution of common stock and earnings per share (EPS). Another is
that the company is able to offer the bond at a lower coupon rate, less than
it would have to pay on a straight bond. In Ac506, I remembered that
convertible bonds are sweetener just like warrants it is to make securities

more attractive to the prospective investors. But I think it was a good turn
that SMC redeemed the $259.3M bonds.
Article: IMF: Let peso rise vs dollar
The exchange rate should move in line with structural flows,
Rachel Van Elkan, chief of the IMF mission to the Philippines.
I personally think it shouldnt, because manipulating the
exchange rates might benefit us not in a long-term but probably short-term
only. I think BSPs opinion is reasonable, think of it this way the current
exchanged rate is at 41.05 peso to 1 dollar and if it will suddenly increase to
52 not because of structural inflow like FDIs and remittances but because
the International Monetary Fund (IMF) said so, what if because of natural
factors or there will be a sudden inflation the peso will decrease instantly,
there will be a volatility of exchange rates which is a really bad case for a
countrys economy even in companies, as what Ive learned from this course
volatile income can lead to bankruptcy of firms. It is better to have stable
exchange rates than volatile ones, which is really unpredictable. Exchange
rates must rise naturally than manipulating it.
Instead of focusing with those things I think we need to focus on
improving the quality of our products and aim on selling finished products
instead of raw materials and developing our manufacturing capacity by
producing products for the local market which will have the effect of lowering
inflation, lowering importation of finish products and encourage employment.
Article: Metrobank open to M&A
Business Merger is a strategy used for the rapid growth of an
enterprise. However, choosing the right strategy and target are equally
important. A merger plan must cover merger process, merger prices,
payment method, financial planning, and organizational adjustment. A
comprehensive review must be made before the merger takes place to make
sure that business value can be created after the merger. It can also be use
for eliminating competitors in the market.
Not all mergers are successful though just like in Metrobanks
case, it had experienced of a bad merging which took a while to digest.
Metrobank learned its lessons from the past, this would be a great advantage
for them because those failures can be prevented due to their experience.
They can really plan the process, prices, payment methods , financial
planning, and organizational adjustments for the merger. Companies merge

to increase revenues, their values, and other things which Ive already
mentioned from the first article. There are also types of mergers the
horizontal, vertical, congeneric and conglomerate. In the article it was stated
that Metrobank was in the best position to capture loans growth given its
loan-to-deposit ratio of 68 percent, the lowest among the group. It is
attractive to those businesses which are profitable in order for them to have
lower taxes.
Article: AES closes to refinancing deal
For me to understand more about the article I searched online the
meaning of refinancing it is to swap out your old loan with a more favorable
loan. The new loan pays off the old loan, so you just make payments on the
newer (presumably better) loan. Sometimes a borrower will borrow a little
extra during refinancing to take some equity out of an asset (known as "cash
out" refinancing).
With the potential expansion of our successful Masinloc facility,
we see an opportunity to contribute to economic growth, while garnering
better business prospects through mutually beneficial partnerships with
trusted local banks, Horrocks added.
AES, is successful through refinancing, Andy Horrocks said that
refinancing helped them extend the average debt life, lower the interest
expense and amend covenant to increase financial flexibility. As what Ive
learned in chapter 3 about ratio analysis regarding the Times-Interest-Earned
Ratio, it is the ratio of earnings before interest and taxes (EBIT) to interest
charges; a measure of the firms ability to meet its annual interest payments.
So, the lower the interest rates the greater the TIE, it is significant to a
company because the failure to pay interest will bring legal action by the
firms creditors and probably would result in bankruptcy. This firm is effective
in managing their debt. I think it is a really great strategy because even their
acquisitions, capital investments and operational improvement are very
successful.

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