This article throws light upon the five major financial problems of merger and consolidation. The financial problems are: 1. Cash Management 2. Credit Policy 3. Financial Planning 4. Dividend Policy 5. Depreciation Policy.
Merger and Consolidation: Financial Problem # 1.
The liquidity problem is the usual problem faced by acquiring companies. Before merger and consolidation, the companies had their own methods of payments, cash behaviour patterns and arrangements with financial institutions. The cash pattern will have to be adjusted according to the present needs of the business.
Merger and Consolidation: Financial Problem # 2.
The credit policies of the companies are unified so that same terms and conditions may be applied to the customers. If the market areas of the companies are different, then same old policies may be followed. The problem will arise only when operating areas of the companies are the same and same credit policy will have to be pursued.
Merger and Consolidation: Financial Problem # 3.
The companies may be following different financial plans before merger and consolidation. The methods of budgeting and financial controls may also be different. After merger and consolidation, a unified financial planning is followed. The divergent financial controls will be unified to suit the needs of the acquiring concerns.
Merger and Consolidation: Financial Problem # 4.
The companies may be following different policies for paying dividend. The stockholders will be expecting higher rates of dividend after merger and consolidation on the belief that financial position and earning capacity has increased after combining the resources of the companies.
This is a ticklish problem and management will have to devise an acceptable pay-out policy. In the earlier stages of merger and consolidation it may be difficult to maintain even the old rates of dividend.
Merger and Consolidation: Financial Problem # 5.
The companies follow different depreciation policies. The methods of depreciation, the rates of depreciation, and the amounts to be taken to revenue accounts will be different. After merger and consolidation the first thing to be decided will be about the depreciable and non-depreciable assets.
The second will be about the rates of depreciation. Different assets will be in different stages of use and appropriate amounts of depreciation should be decided.