Merger and acquisition for Sony and MGM

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Time Warner and Sony Corp. and its partners, which include investor groups Providence Equity Partners, Texas Pacific Group and an arm of Credit Suisse First Boston both entered the bid for Metro-Goldwyn-Mayer or MGM. MGM is a Hollywood-based studio, which has a film library containing about 4,000 titles, including the Wizard of Oz, the James Bond and Pink Panther film series.
MGM has been in talks with bidders for several months.

Time Warner had been offering for MGM at about $11 a share in cash, plus assumed debt for a total of $4.5 billion to $4.6 billion. Time Warner has been clearing its balance sheet of debt for the past several months in order to be prepared for the merger with MGM. As there is Sony-led Consortium competing for MGM, to boost its bid for MGM, the media company would have had to take on debt and offer stock, which the company has been keen to avoid. As a result, Richard Parsons, Time Warner's chairman, announced that the media conglomerate had withdrawn its offer for MGM because Time Warner deemed that they could not reach agreement with MGM at a price that would have represented a prudent use of their growing financial capacity and that there are other capital allocation choices that will enable them to continue to build shareholder value.

The Sony-led group, which includes Providence Equity Partners, Texas Pacific Group and an arm of Credit Suisse First Boston, raised its bid for MGM to beat Time Warner's offer and has reached a deal in principle to acquire MGM for $12 a share, plus assumption of debt, according to another person familiar with the agreement. That would lead to the value of the winning offer to MGM at roughly $4.84 billion.
The final bid was up 75 cents a share from Sony Corp.'s original bid of $11.25 a share, or a little under $4.7 billion. Press reports said that Providence Equity was investing $450 million, while an investment arm of CSFB was contributing $250 million. Sony Corp., as well as Texas Pacific and Comcast, was set to invest $300 million. Nevertheless, the Sony Corp. bid is extremely complicated and rife with difficulty because the two private equity firms, which are Texas Pacific and Providence Equity, are squabbling with control issues and exit strategies.

a. What are the pros and cons of merging or acquiring another company?

Merger and acquisition is one of the common corporate strategies in which the company takes in order to gain competitive advantage. The pros of the merging or acquiring another company include the expansion of market share, operating in multiple markets or industries, more economic value than rival firms, and adoption of technology. We can see that the merging or acquiring of another company in the same industry, the pro will be the higher market share for the acquiring company because they will include the market share of the acquired company. Furthermore, there is also the chance to increase the market share in the future because the consumers or customers see the potential for the acquiring company. The acquiring company can also decide to merge or acquire another company in the different markets or industries. With this choice, the acquiring company would be able to operate in multiple markets or industries. As a result, the acquiring will have an additional source of cash inflows from other industries whereby they will have lower risk in the case that there is anything happened to their major market. The acquiring company will have more economic value than rival firms, which result in higher competitive advantage. Economic value is simply the difference between the perceived benefits gained by a customer that purchased the firm's products or services and the full economic cost of these products and services. Last but not least is the lower cost of production or distribution. Another possible pro is being able to adopt technology from the other ...