Mergers and acquisitions are very common in these days and we daily hear the news of mergers and acquisitions of all the range of companies' small, medium and large scale business tycoons with national and multination companies to enjoy the economies of large scale production and lots of other business objectives. The basic objective of all these activities is to maximize the wealth of ordinary shareholders by maximization of profits and cash inflows. Every business unit is in continuous process of business exploration and extraction of profits by reduction of costs and increase of revenues.
Particularly Business mergers and acquisitions of multinational organizations encompass the objective to expand the business by reducing the cost of financing, reducing the interest rate and exchange rate risks etc. This is not a simple decision to make this include the whole evaluation and valuation of the entity to be taken over and further decision about the valuation method to be used and determination of the price and pricing method as well.
Acquistion & Merger of 3M with Cogent Systems:
3M and Cogent Inc. announced one day that they have entered into a definitive agreement for 3M's acquisition of Cogent Inc. for $10.50 per share. The proposed transaction has an aggregate value of approximately $943 million, or approximately $430 million net of cash acquired. Cogent Inc., commonly referred to as Cogent Systems, provides finger, palm, face and iris biometric systems for governments, law enforcement agencies, and commercial enterprises.
The agreement provides for a subsidiary of 3M to commence a tender offer to purchase all outstanding shares of Cogent Systems within ten business days.
The Board of Directors of Cogent Systems has unanimously recommended that the shareholders of Cogent Systems accept the offer and Mr. Ming Hsieh, Cogent Systems' founder and CEO, and certain entities affiliated with him have agreed to tender their shares to the offer. The offer will be subject to the tender of a majority of Cogent Systems' shares and to certain other customary closing conditions. The transaction is expected to close during the fourth quarter of the year.
Cogent Systems participates in the $4 billion global biometric market, which is projected to grow at a rate greater than 20 percent per year. Its Automated Fingerprint/Palmprint Identification Systems, or AFIS, enable customers to capture fingerprint and palm print images electronically, encode prints into searchable files, and accurately compare a set of fingerprints/palm prints to a database containing potentially millions of prints in seconds.
"Cogent Systems has done a tremendous job establishing a strong presence in the biometric industry," said Mike Delkoski, vice president and general manager, 3M Security Systems Division. "Adding Cogent Systems' products to our business strengthens our product portfolio and services in high security credential issuance and authentication systems and positions 3M's business in law enforcement applications. It also expands our reach into access control and other commercial ID and authentication applications."
Identification and authentication solutions from 3M include border management products; document manufacturing and issuance systems for IDs, passports, and visas; document readers and verification products; and security materials, such as laminates, to protect against counterfeiting and tampering.
"3M can accelerate our growth and extend our reach in global border control markets, law enforcement and commercial applications," said Hsieh. "Together, we'll deliver a broader range of identification and authentication solutions to the security industry and to our customers."
On a GAAP reported basis, 3M estimates the acquisition to be $0.09 to $0.10 dilutive to earnings in the first 12 months following completion of the transaction. Excluding purchase accounting adjustments and anticipated integration expenses, 3M estimates the acquisition to be $0.01 to $0.02 accretive to earnings over the same period. First year EBITDA, excluding purchase accounting and integration costs, is expected to be approximately 35 percent-to-sales.
With approximately $130 million in revenue in 2009, Cogent Systems is based in Pasadena, Calif., and employs approximately 500 people. The company has operations in Ohio, Virginia, Austria, Canada, China, and the United Kingdom. Cogent Systems would be part of 3M's Security Systems Division. Ming Hsieh will remain an integral part of the combined business going forward.
3M is an integrated enterprise characterized by substantial intersegment cooperation, cost allocations and inventory transfers. Therefore, management does not represent that its business segments, if operated independently, would report the operating income and other financial information shown. The difference between operating income and pre-tax income relates to interest income and interest expense, which are not allocated to business segments.
Segment operating income and assets include allocations resulting from the shared utilization of certain corporate or otherwise unallocated assets. However, the separate amounts stated for segment depreciation, amortization, and capital expenditures are based on secondary performance measures used by management that do not include allocations of certain corporate items. Segment assets for the operating business segments (excluding Corporate and Unallocated) primarily includes accounts receivable; inventory; property, plant and equipment net; goodwill and intangible assets; and other miscellaneous assets. Assets included in Corporate and Unallocated principally are cash, cash equivalents and marketable securities; insurance receivables; deferred income taxes; certain investments and other assets, including prepaid pension assets. Corporate and unallocated assets can change from year to year due to changes in cash, cash equivalents and marketable securities, changes in prepaid pension benefits, and changes in other unallocated asset categories.
The day before, Cogent shareholders voted to approve an agreement in which they are entitled to receive $10.50 per share from 3M, the same amount 3M planned to spend when it announced the merger in August. Maplewood-based 3M said at the time that the total acquisition would cost $943 million.
Pasadena, Calif.-based Cogent is a maker of biometric identification systems. The acquisition took longer than expected because not enough cogent shareholders sold their stock under a tender offer from Ventura Acquisition Corp., a wholly owned 3M subsidiary that the manufacturer used for the acquisition.
In October 2010, 3M (Safety, Security and Protection Services Business) acquired a controlling interest in (Cogent Inc. via a tender offer, and in December 2010 completed a second-step merger for the same amount per outstanding share as the tender offer, thereby acquiring the remaining noncontrolling interest in the company. Cogent Inc., based in Pasadena, California, is a provider of finger, palm, face and iris biometric systems for governments, law enforcement agencies, and commercial enterprises. The consideration paid in the preceding table includes $248 million related to the December 2010 acquisition of the remaining noncontrolling interest in Cogent, Inc. Net assetsacquired in the Cogent Inc. transaction included $532 million of cash and marketable securities, as displayed in the preceding table. Purchased identifiable intangible assets related to the acquisitions that closed in 2010 totaled $663 million and will be amortized on a straight-line basis over a weighted-average life of 11 years (lives ranging from 2 to 17 years). Acquired identifiable intangible assets for which significant assumed renewals or extensions of underlying arrangements impacted the determination of their useful lives were not material. The goodwill in the deal was evaluated properly and the future forecasting does matter while in determination f the worth of the companies. The potentail growth rate of the Cogent Systems was flourishing and 3M decision to take over was right.
In 2010, sales increased 15.3 percent, led by Electro and Communications at 28.4 percent, Display and Graphics at 24.0 percent, Industrial and Transportation at 18.7 percent, and Consumer and Office at 11.0 percent. Sales growth in these business segments was led by consumer electronics, automotive OEM, renewable energy, and broad-based consumer and office growth, as well as sales growth in those businesses that serve the broad industrial manufacturing sector. Local-currency sales (which includes volume, selling price and acquisition impacts, but excludes divestiture and translation impacts) increased 14.4 percent. Foreign currency effects added 1.0 percent to sales, while divestiture impacts reduced sales by 0.1 percent. Operating income margins for the 2010 were 22.2 percent, compared to 20.8 percent in 2009. Refer to the section entitled "Performance by Business Segment" and "Performance by Geographic Area" later in MD&A for discussion by business segment and geographic area of sales change and items that impacted reported operating income. Refer to Note 17 for discussion of Corporate and Unallocated and Elimination of Dual Credit.
3M generated $5.2 billion of operating cash flows in 2010, an increase of $233 million when compared to 2009. This followed an increase of $408 million when comparing 2009 to 2008. In 2010, the Company utilized approximately $1.5 billion of cash to pay dividends. In February 2011, 3M's Board of Directors authorized the repurchase of up to $7.0 billion of 3M's outstanding common stock, replacing the Company's existing repurchase program. This authorization has no pre-established end date. The Company repurchased $854 million of 3M common stock in 2010. In 2009, with the Company's emphasis on maintaining ample liquidity and enhancing balance sheet strength, share repurchase activity was minimal, as no broker repurchases of stock were made. This compared to repurchases of 3M common stock of $1.6 billion in 2008. In February 2011, 3M's Board of Directors authorized a dividend increase of 4.8 percent for 2011, marking the 53rd consecutive year of dividend increases for 3M. 3M's debt to total capital ratio (total capital defined as debt plus equity) at December 31, 2010 was 25 percent, compared to 30 percent at December 31, 2009, and 39 percent at December 31, 2008. A portion of the increase in debt at year-end 2008 was the result of a strategy to build and maintain a cash buffer in the U.S. given the difficult market environment at that point in time. 3M has an AA- credit rating with a stable outlook from Standard & Poor's and an Aa2 credit rating.
The financial statements of consolidated companies needs to values at equavalent bais and the liquidation and solvency problems also include that the legal regulatory issues are different in all areas of the world. Any such financial institution in course of liquidation may, with the consent of the commissioner, consolidate with any other like financial institution, upon such terms as may be authorized by their respective boards of directors, with the consent of a majority of the stockholders, and may transfer to such financial institution its entire assets, subject to its existing liabilities.
In consolidation process companies faces different problems espacially the regulatory issues, At the present time and U.S. tax rules require the consolidation of financial statements of subsidiaries according to the percentage of ownership by the parent company. As indicated, the regulations range from a one-line income-item reporting of dividends to a pro rata inclusion of profits and losses to a full disclosure in the balance sheet and income statement.
The Consolidation is based on control model with respect of IFRS while in U.S GAAP the consolidation is based on controlling financial interest model. In accounting, consolidation refers to the inclusion of an affiliate's financial statements in the financial reports by the parent company. According to U.S. GAAP, consolidation takes place if the parent company controls the financial interests of an affiliate. According to IFRS, the financial statements should be consolidated if the parent company is able to govern operating as well as financial policies of an entity to obtain benefits.
