15-25 page paper. Directions and resources are listed

Business Finance and Investment

LITERATURE REVIEW

Lafarge is a renowned multinational firm that manufactures cement. It has the vision and goal to build better cities as well as expand their market territories. The various market entries are Asia, Europe, America and Africa. It has a strategic mission of creating value for stakeholder as well as sharing culture among their global subsidiaries. Currently, the business entity has been working on a merger with Holcim. This is a Russia based manufacturing company so as to expand their business territories. . The estimated revenue of the merger is €41 billion to compete in an over capacitated market. The combination of assets and liabilities for different nationalities may result in trading loss. Consequently, the closure of plants, quarries and terminals in the USA and Canada has resulted in job loss of employed staff (Armental, 2015).

Cement manufacturing companies have faced stiff competition hence mergers strengthens the company’s financial stability. Holcim as a global leader holds majority shareholders in 70 countries worldwide. It reports a net profit of approximately 19 billion Swiss francs. On the other hand, Lafarge firm is a top ranked organization placed in 61 countries. It has estimated net sales of 12 billion euros. Bingham &Kiesel 2013 discusses the various ways to engage the international trading activities. The use of contracts that stipulates the amount of money, currency of exchange and rates for use in a future date is important to establish terms of trade. In this case, Lafarge Holcim uses Euro as their standard currency of business. However, the currency fluctuation between the Swiss Francs and Euro has lead to the delays in the merger and acquisition activities. Both parties aim at maximizing the profitability and minimizing loss during the exercise.

Additionally, the divestment of assets and structures for Lafarge and Holcim have experienced a slow down due to the currency fluctuation in stocks and assets purchase of the various global location of their subsidiaries companies. Consequently, there factors in consideration as the currency edge is established. First, the proposed party needs to analyze the risk and evaluate the exposure level. Determine the engagement capacity and the willing level of cost sharing the risk. Establish a cost effective hedge strategy that considers the tax rates and other expenses. Lastly, continuous analysis of the decision needs to be conducted before finalizing on the contract. Policy placed by accounting bodies stipulates the mode of prediction and the margin used to determine the current exchange rate for future purchase. In addition, it protects the participants against any losses that may occur. It is considered as an insurance policy due to the risk prediction patterns used by the traders, Gregory 2012.

According to Gregory 2012, evaluating financial risks of a company brings about huge profits or losses. Multinational organization have collapsed due to poor risk management. The practice curbs the exploitation of the international trade market, provides currency management and safeguards firm from liabilities. It is important to address the issues of foreign exchange rates when the traders involved are from different geographical location so as their notes. Consequently, addressing the issue of the rate fluctuation and its impact on businesses is critical for competition as well as survival. Despite the adverse views on hedging the influence on companies are due to the tax and other deduction made through the process. Nevertheless, there extremities to the impact of currency hedge which plays a role in the international business environment. The trade currency rates may lead to higher profit margin for the enterprise or it may result in hefty costs and taxes implications. This means that the business may gain through the analyzing the fluctuation pattern and trading for higher profits.

Customers may be exposed to the risk while conducting international trade therefore; the exchange rates used should be favorable for both parties. This enhances the exchange of foreign currency with less limitation of the currency fluctuations in the market rates. The businesses traders need to lock the rates and currency used in a contract so as to use it at a future date. Risks involved include the foreign exchange rate due to the payment made in diverse currency for the trade. The Investment risk involved in the conversion of the excess float to debt through financial aid programs. Additionally, the trading platform can face challenges in the pricing of products. Especially Lafarge had created subsidiaries in Africa, Asia and America. Unfortunately, due to the vast disparity of the foreign currency, the closure of the plants and quarries has increased their vulnerability to public confidence over their corporate governance.

REFERENCE

Armental, M. (2015). Lafarge and Holcim to Sell U.S., Canadian Assets to Clear Way for Merger. The Wall Street Journal. http://www.wsj.com/articles/lafarge-holcim-to-sell-assets-to-address-competition-concerns-1430776488

Gordon, S. & Stothard, M. (2015). Benefits beat problems in Lafarge-Holcim deal, says cement chief. Financial Times. http://www.ft.com/cms/s/0/8f96a0f4-ea64-11e4-a701-00144feab7de.html#axzz3c5PzB7gs Retrieved at 6/4/15 14:22PM

Perrin, A., Vidal, P. & McGill, J. (2006). Knowledge and process management. Valuing knowledge sharing in Lafarge. Journal of Corporate transformation. Vol. 13, p. 26 – 34. DOI: 10.1002/kpm.242

Larfarge Company. (2015). Holcim and Lafarge obtain merger clearances in the United States and Canada paving the way to closing their merger. http://www.lafarge.com/en/holcim-and-lafarge-obtain-merger-clearances-united-states-and-canada-paving-way-closing-their-merger#ixzz3c5qanprM