Founded 78 years ago in San Bernardino, California, McDonald's is an American based fast food business venture. Currently, McDonald's is headquartered in Chicago, Illinois, the United States of America. As the chief executive officer of McDonald's, I can describe the financial performance path of the company as wavy with a lot of up's and downs in the business journey. Performing well in the restaurant’s industry in the United States, McDonald's has had revenue of slightly more than $24 billion in the fiscal year 2016. The target acquisition company is Kellogg's. Kellogg's is based in Battle Creek, Michigan, the United States of America. It is in the food processing industry in the United States of America. Kellogg's is not performing as much as McDonald's in the financial sector. The company's management has also announced that the company needs to merge with another one, based in the United States and performing better. The board of directors at Kellogg's wants to improve the company's performance in the financial sector. Kellogg's made $ 14.8 billion in revenue in the fiscal year 2013.
McDonald's has for a long time desired to merge with another well-known restaurant across the United States of America and in the world. The company has made it public that the strategic direction is to expand its presence within and without the United States of America. That said the acquisition of Kellogg's would enable McDonald's reach more customer bases in and out of the United States of America. McDonald's has also opened more opportunities for its business operations and investment. That is attributed to the ownership of Kellogg's which is in the food processing industry in the United States of America. Therefore, the acquisition of the Michigan based Kellogg's will not only increase the presence of McDonald's across the massive state of Michigan in the united states but also strengthen the McDonald's brand in the united states of America. That will be a factor that influences the success of the strategic direction for the Chicago based restaurant, McDonald's.
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There is usually a common belief that when two companies come together, as in the case of a merger or acquisition, there is an increase in the production than when the companies are separate entities. Therefore, there could be an improvement in the production and customer service when McDonald's acquires Kellogg's. One of the possible synergies that could occur in the acquisition is the revenue synergy. In the revenue synergy, companies that merge sell more products than when they are separate entities. Since McDonald's is not a direct competitor of Kellogg's in the United States and global market, then it will be easier to realize the revenue synergy when McDonald's acquires Kellogg's. The other possible synergy in this acquisition is the cost synergy. In the purchase of Kellogg's, the costs of production in the foodstuffs by the merged companies and the sale of the foods to the global consumers will be reduced. That means that the two companies will save more money in the production than if they were separate firms. The third possible synergy in the acquisition is the financial synergy. The economic synergy points to the financial strength of companies that have merged already. The merger between McDonald's and Kellogg's will result in a better capital structure and position in the market (Henningsson & Kettinger, 2016).
In the revenue synergy, the critical accounting requirements are as follows. The increase in the production accounts for many mergers that are planned and effected in the US, as well as, the other countries in the world. One of the requirements is to know the kind of the merger. McDonald's alliance with Kellogg's is of the conglomerate nature where the former acquires the latter, not due to competition between the two companies, but due to the financial strength of both. The other requirement in the revenue synergy is the knowledge of the methods of ensuring the mergers are a success. The revenue synergy may be based on the purchase method. Under the purchase method, the costs in the acquisition are recorded in both the assets and liabilities in a business. In the financial synergy, the first requirement is to know the exact aspects of the financial strength that the merger touches. For instance, the merger between McDonald's and Kellogg's touches on both companies assets segment leading to an increase in both (Henningsson & Kettinger, 2016).
The preparation of the financial statements is one of the aspects of the businesses that are affected by a merger is completed successfully. There is need to have strategies in place for the preparation of the financial statements after McDonald's acquires Kellogg's. One of the plans is accurate mapping. Mapping, in accounting, refers to the determination of the financial performance direction before acquisition and after a purchase. Mapping is also concerned with the chart of accounts and especially in the determination of the economic prowess of both McDonald's and Kellogg's before the acquisition and that of the merged entities after the purchase. Therefore, mapping of the chart of accounts becomes the best strategy to be used in the preparation of financial reports after the acquisition. Mapping is also applicable to both the revenue and cost synergies in the merger (Demarquet, 2016).
The most advantageous synergy to McDonald's after acquiring Kellogg's is the revenue synergy. Under the revenue synergy, the production of McDonald's after acquiring Kellogg's is expected to increase in favor of the acquirer. The revenue synergy also brings diversity to the products that both McDonald's and Kellogg's come up within a given time, such as a whole year. Kellogg's is concerned with the processing of foodstuffs within and beyond the United States of America. McDonald's is involved with the sale of the foods to the American and the global market as well. Thus, there will be diversity in the production of the foods and their purchase. The sale of more products for the two companies after Kellogg's is acquired will reduce the costs of production, and improve the financial strength of the companies both before and after the merger.
The revenue synergy is the most advantageous to McDonald's after the acquisition of Kellogg's for the following reasons. The first reason is that it is tied to the strategic goals of the company. One of the most significant goals in the company's strategic outlook is the expansion of the company and its ability to reach more customers. Hence, the revenue synergy is related to the decisive goal in that the company will target to come up with a variety of more products, which will mean that the market will be more comprehensive than before. The second reason is that the revenue synergy is that it will provide realism in the determination of the company's performance concerning production before and after it acquires Kellogg's. That will reduce instances of accounting fraud after the acquisition. The third reason is that the revenue synergy offers a consideration of the market dynamics after the merger. One of the market dynamics is the increase in the demand and supply forces in the business.
To report on the net assets in the financial statements of Kellogg's two years after its acquisition by McDonald's, I will use the cost of fair value determination method. In the cost of fair value method, the net assets of the company are valued using the current market values. The fair market value then becomes instrumental in the distribution of the shares back into the public. The company will also realize that the fair value method is profitable in the offering of the shares back to the market. That is because it takes into account the current conditions surrounding production in the market (Accounting Tools, 2018).
References
Accounting Tools. (2018, February 1 ). Fair value accounting . Retrieved from https://www.accountingtools.com/articles/fair-value-accounting.html
Demarquet, G. (2016). Five Key Reasons Enterprise Data Governance Matters to Finance… and
Seven Best Practices to Get You There. Journal of Corporate Accounting & Finance , 27 (2), 47-51.
Henningsson, S., & Kettinger, W. J. (2016). Understanding information systems integration
Deficiencies in mergers and acquisitions: A configurational perspective. Journal of Management Information Systems , 33 (4), 942-977.
