The World Heritage List In Africa Tourism Essay

The World Heritage List In Africa Tourism Essay 1. Introduction The following part of the report will give a general introduction to the site which has been chosen to be added to the list of World Heritage Sites, namely being The Maasai Mara National Reserve. Furthermore the country and the region will be described followed by arguments why particularly this site was chosen and further on naming all the criteria of the World Heritage Committee which the site meets. In addition a concise analysis will be carried out using the Fermata method. This method will help to record all the resources the site has to offer in order to develop a strategy on how to develop tourism within this area. At the end the outcome of this chapters research will be summarized in a short conclusion. General Information on The Maasai Mara National Reserve The Maasai Mara National Reserve is also known as the Mara. Historically, Maasai Mara obtained its name from the native people of Kenya the Maasai tribe who lived along the Mara River. However, the reserve is only a portion of the Greater Mara Ecosystem, which includes a group ranches for example koiyaki, lemeki ,Ol chorro Saina Maji moto Naakara Ol derkesi and Kiminet. The reserve is topography of open savannah grassland in the midst of clusters and acacia trees along the south-eastern area of the park. The reserve covers an area of 1,510 square kilometres in the south-western Kenya. In the northern part, the reserve is mainly covered with Mara-Serengeti ecosystem this covers 25,000 square kilometres between Tanzania and Kenya and in the south It is bounded by the Serengeti Park. Climate The Maasai Mara reserve is located at an altitude between 4,875 and 7,052 feet above sea level giving it a humid climate with moderate temperature. Daytime temperatures run at 85Â °F (30Â °C) and night temperatures drop to around 60Â °F (15Â °C). The rain falls between March and May and shortly in November and December. Between July and October the weather is dry hence the vegetation is in abundant thus tourism get more active in July and October to see the parks wildlife. Tourism According to www.maasaimara.com, The Maasai Mara type of tourism is ecotourism. The ecosystem holds one of the highest lion densities in world with over two million Wildebeest, Zebra and Thomsons Gazelle that migrate annually. This action is known as Natures passion play It occurs between the month of July and august. Additionally the Mara reserve is also home to the largest concentration of wildlife. These include the Big Five (Leopards elephants lions rhinos and buffalo) zebras, antelope, gnus, Oribis, hyenas, giraffes, warthogs, gazelles, hartebeests, hippos, crocodiles to mention a few. The Maasai culture is yet another major attraction, because of their authentic culture thats why it is recognised as one of the best-known tribes in world for their bright colored clothes and traditional dances, souvenirs, art and collectibles that explain their unique tradition. Moreover Bird watching is yet another source of tourism. The Maasai Mara boasts over 400 different birds species. Therefore it attracts bird lover. Arguments for the site In the following, the choice of the Maasai Mara Natural Reserve as a potential future World Heritage Site will be justified with the help of UNESCO criteria. The Maasai Mara Reserve is most famous for its unique wildebeest migration which cannot be found anywhere else on planet earth. The occurrence of the big five as well as the wintering spot for many endangered species makes the reserve an important area that has to be protected in the future. Below three criteria will be mentioned which can be referred to the Maasai Mara Reserve Criteria V: to be an outstanding example of a traditional human settlement, land-use, or sea-use which is representative of a culture (or cultures), or human interaction with the environment especially when it has become vulnerable under the impact of irreversible change. This criterion can be related to the Maasai community living in peace and harmony with the wildlife since a long time. The Maasai community used the land for many years while they kept in mind to conserve the predominant wildlife in a responsible way. Criteria VII: To contain superlative natural phenomena or areas of exceptional natural beauty and aesthetic importance. With its annual wildebeest migration from the Serengeti to the Maasai Mara Reserve the site fulfills the criterion of exceptional natural beauty and aesthetic importance since there is no comparable natural phenomenon worldwide. Further on, the Maasai Mara National Reserve is equipped with beautiful savanna grasslands and plenty different herbivores and bird species. Moreover, the big 5 can be found within the reserve what is also very unique. Criteria X: to contain the most important and significant natural habitats for in-situ conservation of biological diversity, including those containing threatened species of outstanding universal value from the point of view of science or conservation. Since the reserve is an important wintering spot for many different species the criterion of significant in-situ conservation is warranted definitely. Also the occurrence of carnivores such as the lions or the cheetahs are very important for the reserve because they are listed as threatened. Furthermore, they keep the balance of prey numbers what is crucial for the ecosystem. Analysis using the Fermata method In order to come up with a good strategy on how to develop tourism within the Mara region, it is of great importance to know what resources are already available at this moment. Therefore the FERMATA method has been chosen, providing four different tables, namely intrinsic and extrinsic values, modifiers and waypoints. These tables categorize everything that can be found in and around the site and can serve tourism purposes. Intrinsic values Describing a world heritage site means defining intrinsic and extrinsic values of the site. Intrinsic values are those which originate at the resource itself. Hence, intrinsic values are of natural character. These intrinsic values are for instance: Scale, integrity and aesthetic of the landscape as well as diversity, specialty, conspicuousness, appeal, scope and dynamics of resources. In terms of the description of the landscape, the Massai Mara Reserve is characterized by the Mara-River which divides the Reserve into two parts. Further on, the variety in altitudinal range between 200 and 1000 meter makes the Massai Mara a diverse area for all different kinds of birds and flora. With a total scope of 1,510 square kilometers the reserve provides habitat for 1,300,000 wildebeest, 360,000 gazelles and 191,000 zebras. Additionally, many carnivores as well as more than 600 bird species can be found in and around the reserve. In terms of human intervention, the reserve is managed by the Narok County Council and the Transmara County Council who set up several rules and regulations concerning behavior within the Massai Mara Reserve. Moreover, the Massai Community lost much of their land because it became a protected area of the reserve. Furthermore, many farms developed in the northern part of the reserve due to its fertile land. Referred to tourism some 45 tented camps a re distributed all over the reserve which arouses a lot of damaging actions such as high water consumption or dry-season grass fires caused by tourists. (Appendix: Table 1) Going further, it is important to take the resources into consideration. Due to its river, the grassland and the evergreen Amazonian forests the Massai Mara Reserve offers a diverse landscape. However, the landscape itself cannot be considered as very special but the migration of the herbivores that grants the reserve a general impression of outstanding beauty. As already mentioned before, the wildebeest migration can be seen as the pull factor of the site since tourists travel around the world to see this unique natural phenomenon. Although this spectacle can be seen as the main attraction of the reserve many tourists come as well to observe the more than 600 different bird species whereof plenty are listed as endangered. Finally, the Mara River is the only dynamic resource which can be found at the reserve since the rest mainly consists of grasslands and savannah. Situated in Kenya, the climate can be defined as tropical with long rainfalls from April to June. (Appendix: Table 2) Extrinsic values Generally said extrinsic values can be seen as additional features in the natural site, which also make people come to visit the place apart from the fact that they want to enjoy the outstanding natural resource. These features are made by humans and according to FERMATA Inc. (2002) they can be divided up into the following categories: Social, Cultural, Historical, Recreational and Economic. For a brief description see the appendix XYZ I To apply this analysis of the extrinsic values to the Maasai Mara Reserve, it can be said that the reserve gives home to the Maasai people. It is estimated that around 500,000 Maasai live in that area, but due to their fear of governmental intervention into their lifestyle, miscounts often occur. The Maasai belong to those tribes that have not changed a lot in their original culture, rituals and practices regardless of the modern worlds influences they are exposed to. Additionally it should be mentioned that they are mainly in possession of the land and deal with its management, however, lately they have lost a lot of land to parks and reserves, which prohibit them from accessing important sources of water, pastureland and spots where salt can be found. (Masaai Association, 2010) From a cultural point of view the villages of the previously mentioned Maasai tribe can be seen as an attracting attribute, for example due to their houses solemnly built from natural resources or their very simple lifestyle which is perfectly adjusted to their natural environment. Regarding the historical values one will have difficulties finding any in the Maasai Mara reserve, because the Maasai tribes live a nomadic life moving within the reserve depending on the season and therefore certain monuments or special places are not part of their culture. All their requirements for ceremonies and rituals are based on what they can find in nature. (Maasai Association, 2010) Concerning recreational values one can find three different lodges and around thirty campsites to spend the night there. Moreover these lodges or camps offer a number of safaris including jeeped safaris, balloon safaris, horse riding safaris and walking safaris accompanied by a Maasai. (ORD Group, 2010) Finally the economic values of the Maasai Mara National Reserve are that it attracts a lot of tourists and as the number of inhabitants is constantly increasing, but the number of livestock is decreasing in the same time , people depend more and more on other sources for nourishment. Therefore in the northern part of the area they have started to erect extensive fields to grow e.g. soya beans, wheat or sorghum. (UNESCO, 2010) Modifiers, constraints, limits, qualifying factors Modifiers: These are constraints that hinder tourism development at the Maasai Mara ReserveEcological: The damage in term of ecology is high, this is due to fact that Maasai Mara is not a national park but rather a national reserve hence it is not managed by the Kenya Wildlife Service. Its welfare is entrusted in the hands of Narok County Council and the Mara Conservancy who attain contract from the Trans Mara County Council. According to Dublin (1991) the lack of proper management leads to poaching, destruction of habitat by constant uncontrolled bush fires and exceptionally heavy influx of elephants hence to a decline in number of animals. Moreover over development of hotels, camps and loges outside the gate of the reserve is growing on a high rate. A summary of the ecological constrains according to Charles Ndegwa Mundia, Yuji Murayama ( 2009) can be found in the appendix XYZ-II. Physical: Tracks are established, balloon and helicopters in order to reach the natural and cultural heritages. Visiting the reserve is possible throughout the years. High season is from January to March this is when it is heavily overcrowded by people because it is dry and warm. Also in June and September it is overcrowded because this is the time when wild beasts migrate. Health and Safety: Masai Mara Reserve is fairly a safe place, however, it is recommended not to get out of track. Concerning the health issues, the Maasai Mara National Reserve lies in a malaria region which foresees to take anti malaria precautions, wearing long-sleeved clothing after dark and applying insect repellent. The water is safe and there is big hospital in Nairobi 100km east of the park in case of an emergency. Feeding animals is not allowed since it might induce danger of boldness and foster aberrant behaviour which might be harmful for the visitors. Regulatory: There are many rules and regulations mainly for conservation and visitors safety and faller to apply; there is a penalty in form of paying a certain amount of money. According to Matt J. Walpole (2003) In the Mara Triangle; not more than five vehicles is allowed around an animal because it disturb the harmony of animals. Secondly Human habitation is forbidden in the National Park only staffs are allowed. Thirdly driving off the road is not allowed. Also Visitors are only allowed on the roads from 06:00 to 19:00. Additionally people are urged to keep the environment clean putting trash at their accommodation not at site. Respect the culture of the local people and lastly no animal feeding by visitors because it dangerous. Economic: the fee to reach the reserve and cultural resources is moderate since the Kenyan currency value is low, except for the accommodation and guided tours depending on if you sleeping in camp or luxurious hotel. The transit to the park as well as entering the park certain fee is obligated. Adult inhabitant costs 500 Kshs; children inhabitant costs 200 Kshs, adult non local 30 US dollars and children non local 10 US dollars. Time: The reserve can be accessed from Nairobi airport, its about 270km that is six hours by car but it can shorter by helicopter. The more suitable time is in June and September when wildlife migration take place Moreover the high season is from January to March when it is warm and dry. In October December are rainy seasons however it doesnt hinder game viewing To conclude the above constrains, it can be said that Mara reserve is facing a lot of challenges mainly regarding the ecology. But they have implemented rules to protect both the animals and the people although the rules are not 100% acted upon because the government left the reserve in the hands of private ownership. However there is evidence that the site has abundant nature and culture sites, unique species and rear landscape hence these fit in UNESCO criteria. Waypoints: Gateways, Portals, Icons ME Conclusion Me

Excellence in Financial Management

Excellence in Financial Management Course 7: Mergers & Acquisitions (Part 2) Prepared by: Matt H. Evans, CPA, CMA, CFM Part 2 of this course continues with an overview of the merger and acquisition process, including the valuation process, post merger integration and anti-takeover defenses. The purpose of this course is to give the user a solid understanding of how mergers and acquisitions work. This course deals with advanced concepts in valuation. Therefore, the user should have an understanding of cost of capital, forecasting, and value based management before taking this course. This course is recommended for 2 hours of Continuing Professional Education. In order to receive credit, you will need to pass a multiple choice exam which is administered over the internet at www. exinfm. com/training Published June 2000 Chapter 4 Valuation Concepts & Standards As indicated in Part 1 of this Short Course, a major challenge within the merger and acquisition process is due diligence. One of the more critical elements within due diligence is valuation of the Target Company. We need to assign a value or more specifically a range of values to the Target Company so that we can guide the merger and acquisition process. We need answers to several questions: How much should we pay for the target company, how much is the target worth, how does this compare to the current market value of the target company, etc.? It should be noted that the valuation process is not intended to establish a selling price for the Target Company. In the end, the price paid is whatever the buyer and the seller agree to. The valuation decision is treated as a capital budgeting decision using the Discounted Cash Flow (DCF) Model. The reason why we use the DCF Model for valuation is because: Discounted Cash Flow captures all of the elements important to valuation. ? Discounted Cash Flow is based on the concept that investments add value when returns exceed the cost of capital. ? Discounted Cash Flow has support from both research and within the marketplace. The valuation computation includes the following steps: 1. Discounting the future expected cash flows over a forecast period. 2. Adding a terminal value to cover the period beyond the forecast period. 3. Adding investment income, excess cash, and other non-operating assets at their present values. . Subtracting out the fair market values of debt so that we can arrive at the value of equity. Before we get into the valuation computation, we need to ask: What are we trying to value? Do we want to assign value to the equity of the target? Do we value the Target Company on a long-term basis or a short-term basis? For example, the valuation of a company expected to be liquidated is different from the valuation of a going concern. Most mergers and acquisitions are directed at acquiring the equity of the Target Company. However, when you acquire ownership (equity) of the Target Company, you will assume the outstanding liabilities of the target. This will increase the purchase price of the Target Company. Example 1 – Determine Purchase Price of Target Company Ettco has agreed to acquire 100% ownership (equity) of Fulton for $ 100 million. Fulton has $ 35 million of liabilities outstanding. Amount Paid to Acquire Fulton$ 100 million Outstanding Liabilities Assumed 35 million Total Purchase Price$ 135 million Key Point ( Ettco has acquired Fulton based on the assumption that Fulton's business will generate a Net Present Value of $ 135 million. For publicly traded companies, we can get some idea of the economic value of a company by looking at the stock market price. The value of the equity plus the value of the debt is the total market value of the Target Company. Example 2 – Total Market Value of Target Company Referring back to Example 1, assume Fulton has 2,500,000 shares of stock outstanding. Fulton's stock is selling for $ 60. 00 per share and the fair market value of Fulton's debt is $ 40 million. Market Value of Stock (2,500,000 x $ 60. 00) $ 150 million Market Value of Debt 40 million Total Market Value of Fulton$ 190 million A word of caution about relying on market values within the stock market; stocks rarely trade in large blocks similar to merger and acquisition transactions. Consequently, if the publicly traded target has low trading volumes, then prevailing market prices are not a reliable indicator of value. Income Streams One of the dilemmas within the merger and acquisition process is selection of income streams for discounting. Income streams include Earnings, Earnings Before Interest & Taxes (EBIT), Earnings Before Interest Taxes Depreciation & Amortization (EBITDA), Operating Cash Flow, Free Cash Flow, Economic Value Added (EVA), etc. In financial management, we recognize that value occurs when there is a positive gap between return on invested capital less cost of capital. Additionally, we recognize that earnings can be judgmental, subject to accounting rules and distortions. Valuations need to be rooted in â€Å"hard numbers. † Therefore, valuations tend to focus on cash flows, such as operating cash flows and free cash flows over a projected forecast period. Free Cash Flow One of the more reliable cash flows for valuations is Free Cash Flow (FCF). FCF accounts for future investments that must be made to sustain cash flow. Compare this to EBITDA, which ignores any and all future required investments. Consequently, FCF is considerably more reliable than EBITDA and other earnings-based income streams. The basic formula for calculating Free Cash Flow (FCF) is: FCF = EBIT (1 – t ) + Depreciation – Capital Expenditures + or – Net Working Capital ( 1 – t ) is the after tax percent, used to convert EBIT to after taxes. Depreciation is added back since this is a non-cash flow item within EBIT Capital Expenditures represent investments that must be made to replenish assets and generate future revenues and cash flows. Net Working Capital requirements may be involved when we make capital investments. At the end of a capital project, the change to working capital may get reversed. Example 3 – Calculation of Free Cash Flow EBIT$ 400 Less Cash Taxes (130) Operating Profits after taxes 270 Add Back Depreciation 75 Gross Cash Flow 345 Change in Working Capital 42 Capital Expenditures (270) Operating Free Cash Flow 117 Cash from Non Operating Assets * 10 Free Cash Flow$ 127 * Investments in Marketable Securities In addition to paying out cash for capital investments, we may find that we have some fixed obligations. A different approach to calculating Free Cash Flow is: FCF = After Tax Operating Tax Cash Flow – Interest ( 1 – t ) – PD – RP – RD – E PD: Preferred Stock Dividends RP: Expected Redemption of Preferred Stock RD: Expected Redemption of Debt E: Expenditures required to sustain cash flows Example 4 – Calculation of Free Cash Flow The following projections have been made for the year 2005: ? Operating Cash Flow after taxes are estimated as $ 190,000 ? Interest payments on debt are expected to be $ 10,000 ? Redemption payments on debt are expected to be $ 40,000 ? New investments are expected to be $ 20,000 The marginal tax rate is expected to be 30% After Tax Operating Cash Flow$ 190,000 Less After Tax Depreciation ($10,000 x (1 – . 30)) ( 7,000) Debt Redemption Payment (40,000) New Investments (20,000) Free Cash Flow$ 123,000 Discount Rate Now that we have some idea of our income stream for valuing the Target Company, we need to de termine the discount rate for calculating present values. The discount rate used should match the risk associated with the free cash flows. If the expected free cash flows are highly uncertain, this increases risk and increases the discount rate. The riskier the investment, the higher the discount rate and vice versa. Another way of looking at this is to ask yourself – What rate of return do investors require for a similar type of investment? Since valuation of the target's equity is often the objective within the valuation process, it is useful to focus our attention on the â€Å"targeted† capital structure of the Target Company. A review of comparable firms in the marketplace can help ascertain targeted capital structures. Based on this capital structure, we can calculate an overall weighted average cost of capital (WACC). The WACC will serve as our base for discounting the free cash flows of the Target Company. Basic Applications Valuing a target company is more or less an extension of what we know from capital budgeting. If the Net Present Value of the investment is positive, we add value through a merger and acquisition. Example 5 – Calculate Net Present Value Shannon Corporation is considering acquiring Dalton Company for $ 100,000 in cash. Dalton's cost of capital is 16%. Based on market analysis, a targeted cost of capital for Dalton is 12%. Shannon has estimated that Dalton can generate $ 9,000 of free cash flows over the next 12 years. Using Net Present Value, should Shannon acquire Dalton? Initial Cash Outlay$ (100,000) FCF of $ 9,000 x 6. 1944 * 55,750 Net Present Value $ ( 44,250) * present value factor of annuity at 12%, 12 years. Based on NPV, Shannon should not acquire Dalton since there is a negative NPV for this investment. We also need to remember that some acquisitions are related to physical assets and some assets may be sold after the merger. Example 6 – Calculate Net Present Value Bishop Company has decided to sell its business for a sales price of $ 50,000. Bishop's Balance Sheet discloses the following: Cash$ 3,000 Accounts Receivable 7,000 Inventory 12,000 Equipment – Dye 115,000 Equipment – Cutting 35,000 Equipment – Packing 30,000 Total Assets$ 202,000 Liabilities 80,000 Equity 122,000 Total Liab & Equity$ 202,000 Allman Company is interested in acquiring two assets – Dye and Cutting Equipment. Allman intends to sell all remaining assets for $ 35,000. Allman estimates that total future free cash flows from the dye and cutting equipment will be $ 26,000 per year over the next 8 years. The cost of capital is 10% for the associated free cash flows. Ignoring taxes, should Allman acquire Bishop for $ 50,000? Amount Paid to Bishop$ (50,000) Amount Due Creditors (80,000) Less Cash on Hand 3,000 Less Cash from Sale of Assets 35,000 Total Initial Cash Outlay$ (92,000) Present Value of FCF's for 8 years at 10% – $ 26,000 x 5. 3349 138,707 Net Present Value (NPV)$ 46,707 Based on NPV, Allman should acquire Bishop for $ 50,000 since there is a positive NPV of $ 46,707. A solid estimation of incremental changes to cash flow is critical to the valuation process. Because of the variability of what can happen in the future, it is useful to run cash flow estimates through sensitivity analysis, using different variables to assess â€Å"what if† type analysis. Probability distributions are used to assign values to various variables. Simulation analysis can be used to evaluate estimates that are more complicated. Valuation Standards Before we get into the valuation calculation, we should recognize valuation standards. Most of us are reasonably aware that Generally Accepted Accounting Principles (GAAP) are used as standards to guide the preparation of financial statements. When we calculate the value (appraisal) of a company, there is a set of standards known as â€Å"Uniform Standards of Professional Appraisal Practice† or USAAP. USAAP's are issued by the Appraisals Standards Board. Here are some examples: To avoid misuse or misunderstanding when Discounted Cash Flow (DCF) analysis is used in an appraisal assignment to estimate market value, it is the responsibility of the appraiser to ensure that the controlling input is consistent with market evidence and prevailing attitudes. Market value DCF analysis should be supported by market derived data, and the assumptions should be both market and property specific. Market value DCF analysis is intended to reflect the expectations and perceptions of market participants along with available factual data. In developing a real property appraisal, an appraiser must: (a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a creditable appraisal; (b) not commit a substantial error of omission or co-omission that significantly affects an appraisal; (c) not render appraisal services in a careless or negligent manner, such as a series of errors that considered individually may not significantly affect the result of an appraisal, but which when considered in aggregate would be misleading. Another area that can create some confusion is the definition of market value. This is particularly important where the Target Company is private (no market exists). People involved in the valuation process sometimes refer to IRS Revenue Ruling 59-60 which defines market value as: The price at which the property could change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. A final point about valuation standards concerns professional certification. Two programs directly related to valuations are Certified Valuation Analyst (CVA) and Accredited in Business Valuations (ABV). The CVA is administered by the National Association of CVA's (www. nacva. com) and the ABV is administered by the American Institute of Certified Public Accountants (AICPA – www. aicpa. org). Enlisting people who carry these professional designations is highly recommended. Chapter 5 The Valuation Process We have set the stage for valuing the Target Company. The overall process is centered around free cash flows and the Discounted Cash Flow (DCF) Model. We will now focus on the finer points in calculating the valuation. In the book Valuation: Measuring and Managing the Value of Companies, the authors Tom Copland, Tim Koller, and Jack Murrin outline five steps for valuing a company: 1. Historical Analysis: A detail analysis of past performance, including a determination of what drives performance. Several financial calculations need to be made, such as free cash flows, return on capital, etc. Ratio analysis and benchmarking are also used to identify trends that will carry forward into the future. 2. Performance Forecast: It will be necessary to estimate the future financial performance of the target company. This requires a clear understanding of what drives performance and what synergies are expected from the merger. 3. Estimate Cost of Capital: We need to determine a weighed average cost of capital for discounting the free cash flows. 4. Estimate Terminal Value: We will add a terminal value to our forecast period to account for the time beyond the forecast period. 5. Test & Interpret Results: Finally, once the valuation is calculated, the results should be tested against independent sources, revised, finalized, and presented to senior management. Financial Analysis We start the valuation process with a complete analysis of historical erformance. The valuation process must be rooted in factual evidence. This historical evidence includes at least the last five years (preferably the last ten years) of financial statements for the Target Company. By analyzing past performance, we can develop a synopsis or conclusion about the Target Company's future expected performance. It is also importa nt to gain an understanding of how the Target Company generates and invests its cash flows. One obvious place to start is to assess how the merger will affect earnings. P / E Ratios (price to earnings per share) can be used as a rough indicator for assessing the impact on earnings. The higher the P / E Ratio of the acquiring firm compared to the target company, the greater the increase in Earnings per Share (EPS) to the acquiring firm. Dilution of EPS occurs when the P / E Ratio Paid for the target exceeds the P / E Ratio of the acquiring company. The size of the target's earnings is also important; the larger the target's earnings are relative to the acquirer, the greater the increase to EPS for the combined company. The following examples will illustrate these points. Example 7 – Calculate Combined EPS Greer Company has plans to acquire Holt Company by exchanging stock. Greer will issue 1. shares of its stock for each share of Holt. Financial information for the two companies is as follows: Greer Holt Net Income$ 400,000 $ 100,000 Shares Outstanding 200,000 25,000 Earnings per Share$ 2. 00$ 4. 00 Market Price of Stock$ 40. 00$ 48. 00 Greer expects the P / E Ratio for the combined company to be 15. Combined EPS = ($ 400,000 + $ 100,000) / (200,000 share s + (25,000 x 1. 5)) = $ 500,000 / 237,500 = $ 2. 11 Expected P / E Ratio x 15 Expected Price of Stock$ 31. 65 Before we move to our next example, we should explain exchange ratios. The exchange ratio is the number of shares offered by the acquiring company in relation to each share of the Target Company. We can calculate the exchange ratio as: Price Offered by Acquiring Firm / Market Price of Acquiring Firm Example 8 – Determine Dilution of EPS Romer Company will acquire all of the outstanding stock of Dayton Company through an exchange of stock. Romer is offering $ 65. 00 per share for Dayton. Financial information for the two companies is as follows: Romer Dayton Net Income$ 50,000 $ 10,000 Shares Outstanding 5,000 2,000 Earnings per Share$ 10. 00$ 5. 00 Market Price of Stock$ 150. 00 P / E Ratio 15 1) Calculate shares to be issued by Romer: $ 65 / $ 150 x 2,000 shares = 867 shares to be issued. 2) Calculate Combined EPS: ($ 50,000 + $ 10,000) / (5,000 + 867) = $ 10. 23 3) Calculate P / E Ratio Paid: Price Offered / EPS of Target or $ 65. 00 / $ 5. 00 = 13 4) Compare P / E Ratio Paid to current P / E Ratio: Since 13 is less than the current ratio of 15, there should be no dilution of EPS for the combined company. 5) Calculate maximum price before dilution of EPS: 15 = price / $ 5. 0 or $ 75. 00 per share. $ 75. 00 is the maximum price that Romer should pay before EPS are diluted. It is important to note that we do not want to get overly pre-occupied with earnings when it comes to financial analysis. Most of our attention should be directed at drivers of value, such as return on capital. For example, free cash flow and economic value added are much more important drivers of value than EPS and P / E Ra tios. Therefore, our financial analysis should determine how does the target company create value – does it come from equity, what capital structure is used, etc.? In order to answer these questions, we need to: 1. Calculate value drivers, such as free cash flow. 2. Analyze the results, looking for trends and comparing the results to other companies. 3. Looking back historically in order to ascertain a â€Å"normal† level of performance. 4. Analyzing the details to uncover how the Target Company creates value and noting what changes have taken place. Value Drivers Three core financial drivers of value are: 1. Return on Invested Capital (NOPAT / Invested Capital) 2. Free Cash Flows 3. Economic Value Added (NOPAT – Cost of Capital) NOPAT: Net Operating Profits After Taxes A value driver can represent any variable that affects the value of the company, ranging from great customer service to innovative products. Once we have identified these value drivers, we gain a solid understanding about how the company functions. The key is to have these value drivers fit between the Target Company and the Acquiring Company. When we have a good fit or alignment, management will have the ability to influence these drivers and generate higher values. In the book Valuation: Measuring and Managing the Value of Companies, the authors break down value drivers into three categories: Type of Value DriverManagement's Ability to Influence Level 1 – GenericLow Level 2 – Business UnitsModerate Level 3 – OperatingHigh For example, sales revenue is a generic value driver (level 1), customer mix would be a business unit value driver (level 2), and customers retained would be an operating value driver (level 3). Since value drivers are inter-related and since management will have more influence over level 3 drivers, the key is to ascertain if the merger will give management more or less influence over the operating value driver. If yes, then a merger and acquisition could lead to revenue or expense synergies. Be advised that you should not work in reverse order; i. e. from level 1 down to level 3. For example, an increase in sales pricing will add more value to level 1, but in the long-run you will hurt customers retained (level 3) and thus, you may end-up destroying value. Once we have identified value drivers, we can develop a strategic view of the Target Company. This strategic view along with drivers of value must be considered in making a performance forecast of the Target Company. We want to know how will the Target Company perform in the future. In order to answer this question, we must have a clear understanding of the advantages that the Target Company has in relation to the competition. These competitive advantages can include things like customer mix, brand names, market share, business processes, barriers to competition, etc. An understanding of competitive advantages will give us insights into future expected growth for the Target Company. Forecasting Performance Now that we have some insights into future growth, we can develop a set of performance scenarios. Since no-one can accurately predict the future, we should develop at least three performance scenarios: . Conservative Scenario: Future growth will be slow and decline over time. 2. General Industry Scenario: Continued moderate growth similar to the overall industry. 3. Improved Growth Scenario: Management has the ability to influence level 1 value drivers and we can expect above average growth. Keep in mind that performance scenarios have a lot of assumptions and many of these assumptions are based on things like future competition, new technologies, changes in the economy, changes in consumer behavior, etc. The end-result is to arrive at a â€Å"most likely† value between the different scenarios. Example 9 – Overall Value per Three Scenarios You have calculated three Net Present Value's (NPV) over a 12 year forecast period. Based on your analysis of value drivers, strategies, competition, and other variables, you have assigned the following values to each scenario: ScenarioProbability xNet Present Value =Expected Value Conservative 20% $ 180,000$ 36,000 Normal 65% 460,000 299,000 M & A Growth 15% 590,000 88,500 Overall Value of Target Company$ 423,500 The Valuation Model should include a complete set of forecasted financial statements. Usually a set of forecasted financial statements will start with the Sales Forecast since sales is a driver behind many account balances. A good sales forecast will reflect future expected changes in sales prices, volumes, and other variables. NOTE: For more information about preparing forecasted financial statements, refer to Short Course 2 – Financial Planning & Forecasting. Two important points when preparing your forecast are: Historical Perspective: Make sure the pieces of your forecast fit together and flow from historical performance. Historical values are very important for predicting the future. You can gain an historical perspective by simply plotting financial trends (see Example 10). Forecast Period: Your forecast period should cover a long enough period for the target company to reach a stable and consistent performance level. For example, a company has reached a stable point when it can earn a constant rate of return on capital for an indefinite period and the company has the ability to reinvest a constant proportion of earnings back into the business. Rarely is the forecast period less than seven years. When in doubt, use a longer forecast than a shorter forecast. The final step in forecasting the financials is to estimate the value drivers and verify the value drivers against historical facts. As we indicated, three core drivers are return on capital, free cash flow, and economic value added. Make sure you test your results; are key drivers consistent with what has happened in the past, what are the trends for future growth, what are the competitive trends, how will this impact performance, etc.? Example 10 – Plotting Historical Trends to help with preparing forecasted financial statements 1990 1991 1992 1993 1994 Operations: Growth in Revenues 14% 12% 11% 11% 10% Growth in Margins 7% 7% 6% 5% 5% Working Capital: Cash 2% 2% 2% 3% 3% Accts Rec 12% 13% 13% 13% 14% Accts Payable 4% 4% 5% 5% 5% Investments: Assets to Sales 30% 31% 28% 29% 28% Return on Capital 14% 12% 13% 13% 12% When we have completed the Valuation Model, we will have a set of forecasted financial statements supporting each of our scenarios: Forecasted Income Statement – 3 Scenarios ? Forecasted Balance Sheet – 3 Scenarios ? Forecasted Free Cash Flows – 3 Scenarios ? Forecasted Return on Capital – 3 Scenarios ? Forecasted Performance Ratios – 3 Scenarios Example 11 – Forecasted Income Statement for Scenario 2 – Moderate ($ million) 2001 2002 2003 2004 2005 2006 2007 Revenues $ 6. 50$ 6. 70 $ 6. 85 $6. 95 $7. 05 $7. 09 $7. 12 Less Operating 3. 20 3. 30 3. 41 3. 53 3. 65 3. 72 3. 78 Less Depreciation . 56 . 54 . 2 . 85 . 80 . 77 . 72 EBIT 2. 74 2. 86 2. 92 2. 57 2. 60 2. 60 2. 62 Less Interest . 405 . 380 . 365 . 450 . 440 . 410 . 390 Earnings Before Tax 2. 335 2. 480 2. 555 2. 12 2. 16 2. 19 2. 23 Less Taxes . 780 . 810 . 870 . 650 . 660 . 71 . 73 Net Income 1. 555 1. 670 1. 685 1. 470 1. 500 1. 48 1. 50 Terminal Values It is quite possible that free cash flows will be generated well beyond our forecast period. Therefore, many valuations will add a terminal value to the valuation forecast. The terminal value represents the total present value that we will receive after the forecast period. Example 12 – Adding Terminal Value to Valuation Forecast Net Present Value for forecast period (Example 9) $ 423,500 Terminal Value for beyond forecast period 183,600 Total NPV of Target Company$ 607,100 There are several approaches to calculating the terminal value: Dividend Growth: Simply take the free cash flow in the final year of the forecast, add a nominal growth rate to this flow and discount the free cash flow as a perpetuity. Terminal value is calculated as: Terminal Value = FCF ( t + 1 ) / wacc – g ( t + 1 ) refers to the first year beyond the forecast period wacc: weighted average cost of capital g: growth rate, usually a very nominal rate similar to the overall economy It should be noted that FCF used for calculating terminal values is a normalized free cash flow (FCF) representative of the forecast period. Example 13 – Calculate Terminal Value Using Dividend Growth You have prepared a forecast for ten years and the normalized free cash flow is $ 45,000. The growth rate expected after the forecast period is 3%. The wacc for the Target Company is 12%. ($ 45,000 x 1. 03) / (. 12 – . 03) = $ 46,350 / . 09 = $ 515,000 If we wanted to exclude the growth rate in Example 13, we would calculate terminal value as $ 46,350 / . 12 = $ 386,250. This gives us a much more conservative estimate. Adjusted Growth: Growth is included to the extent that we can generate returns higher than our cost of capital. As a company grows, you must reinvest back into the business and thus free cash flows will fall. Therefore, the Adjusted Growth approach is one of the more appropriate models for calculating terminal values. Terminal Value = EBIT ( 1 – tr) ( 1 – g / r ) / wacc – g tr: tax rateg: growth rater: rate of return on new investments Example 14 – Calculate Terminal Value Using Adjusted Growth Normalized EBIT is $ 60,000 and the expected normal tax rate is 30%. The overall long-term growth rate is 3% and the weighted average cost of capital is 12%. We expect to obtain a rate of return on new investments of 15%. $ 61,800 ( 1 – . 30 ) ( 1 – . 03 / . 15 ) / (. 12 – . 03) = $ 43,260 ( . 80 ) / . 09 = $ 384,533 If we use Free Cash Flows, we would have the following type of calculation: Earnings Before Interest Taxes (EBIT)$ 60,000 Remove taxes (1 – tr ) x . 70 Operating Income After Taxes 42,000 Depreciation (non cash item) 12,000 Less Capital Expenditures ( 9,000) Less Changes to Working Capital ( 1,000) Free Cash Flow 44,000 Growth Rate @ 3% x 1. 03 Free Cash Flow ( t + 1 ) 45,320 Adjust Growth > Return on Capital x . 80 Adjusted FCF ( t + 1 ) 36,256 Divided by wacc – g or . 12 – . 03 . 09 Terminal Value$ 402,844 EVA Approach: If your valuation is based on economic value added (EVA), then you should extend this concept to your terminal value calculation: Terminal Value = NOPAT ( t + 1 ) x ( 1 – g / rc ) / wacc – g NOPAT: Net Operating Profits After Taxesrc: return on invested capital Terminal values should be calculated using the same basic model you used within the forecast period. You should not use P / E multiples to calculate terminal values since the price paid for a target company is not derived from earnings, but from free cash flows or EVA. Finally, terminal values are appropriate when two conditions exist: 1. The Target Company has consistent profitability and turnover of capital for generating a constant return on capital. . The Target Company is able to reinvest a constant level of cash flow because of consistency in growth. If these two criteria do not exist, you may need to consider a more conservative approach to calculating terminal value or simply exclude the terminal value altogether. Example 15 – Summarize Valuation Calculation Based on Expected Values under Three Scenarios Present Value of FCF' s for 10 year forecast period$ 62,500 Terminal Value based on Perpetuity 87,200 Present Value of Non Operating Assets 8,600 Total Value of Target Company 158,300 Less Outstanding Debt at Fair Market Value: Short-Term Notes Payable ( 6,850) Long-Term Bonds (25 year Grade BB) ( 26,450) Long-Term Bonds (10 year Grade AAA) ( 31,900) Long-Term Bonds ( 5 year Grade BBB) ( 22,700) Present Value of Lease Obligations ( 17,880) Total Value Assigned to Equity 52,520 Outstanding Shares of Stock 7,000 Value per Share ($ 52,520 / 7,000)$ 7. 50 Example 16 – Calculate Value per Share You have completed the following forecast of free cash flows for an eight year period, capturing the normal business cycle of Arbor Company: Year FCF 2001$ 1,550 002 1,573 2003. 1,598 2004. 1,626 2005. 1,656 2006. 1,680 2007. 1,703 2008. 1,725 Arbor has non-operating assets of $ 150. These assets have an estimated present value of $ 500. Based on the present value of future payments, the present value of debt is $ 2,800. Terminal value is calculated using the dividend growth model. A nominal growth rate of 2% will be used. Arbor's targeted cost of capital is 14%. Arbor ha s 3,000 shares of stock outstanding. What is Arbor's Value per Share? Year FCF x P. V. @ 14%Present Value 2001$ 1,550. 8772$ 1,360 2002 1,573. 7695 1,210 003. 1,598. 6750 1,079 2004. 1,626. 5921 963 2005. 1,656. 5194 860 2006. 1,680. 4556 765 2007. 1,703. 3996 681 2008. 1,725. 3506 605 Total Present Value for Forecast Period $ 7,523 Terminal Value = ($ 1,725 x 1. 02) / (. 14 – . 02) = 14,663 Value of Non Operating Assets 500 Total Value of Arbor 22,686 Less Value of Debt( 2,800) Value of Equity 19,886 Shares Outstanding 3,000 Value per Share$ 6. 63 Special Problems Before we leave valuations, we should note some special problems that can influence the valuation calculation. Private Companies: When valuing a private company, there is no marketplace for the private company. This can make comparisons and other analysis very difficult. Additionally, complete historical information may not be available. Consequently, it is common practice to add to the discount rate when valuing a private company since there is much more uncertainty and risk. Foreign Companies: If the target company is a foreign company, you will need to consider several additional variables, including translation of foreign currencies, differences in regulations and taxes, lack of good information, and political risk. Your forecast should be consistent with the inflation rates in the foreign country. Also, look for hidden assets since foreign assets can have significant differences between book values and market values. Complete Control: If the target company agrees to relinquish complete and total control over to the acquiring firm, this can increase the value of the target. The value assigned to control is expressed as: CV = C + M CV: Controlling Value C: Maximum price the buyer is willing to pay for control of the target company M: Minority Value or the present value of cash flows to minority shareholders. If the merger is not expected to result in enhanced values (synergies), then the acquiring firm cannot justify paying a price above the minority value. Minority value is sometimes referred to as stand-alone value. Chapter 6 Post Merger Integration We have now reached the fifth and final phase within the merger and acquisition process, integration of the two companies. Up to this point, the process has focused on putting a deal together. Now comes the hard part, making the merger and acquisition work. If we did a good job with due diligence, we should have the foundation for post merger integration. However, despite due diligence, we will need to address a multitude of issues, such as: ? Finalizing a common strategy for the new organization. We need to be careful not to impose one strategy onto the other company since it may not fit. ? Consolidating duplicative services, such as human resources, finance, legal, etc. ? Consolidating compensation plans, corporate policies, and other operating procedures. ? Deciding on what level of integration should take place. ? Deciding on who will govern the new organization, what authority people will have, etc. It is ironic that in many cases, senior management is actively involved in putting the merger together, but once everything has been finalized, the job of integrating the two companies is dumped on middle level management. Therefore, one of the first things that should happen within post merger integration is for senior management to: ? Develop an overall plan for integrating the two companies, including a time frame since synergy values need to be recovered quickly. If synergy values are dependent upon the target's customers, markets, assets, etc. , then a fast integration process should be planned. If expected synergies come from strategies and intellectual capital of the target, a more cautious approach to integration may be appropriate. ? Directing and guiding the integration process, establishing governance, and assigning project managers to integration projects. ? Leading change through great communication, bringing people together, resolving issues before they magnify, establishing expectations, etc. Once the two companies announce their merger, an entire set of dynamics goes into motion. Uncertainty and change suddenly impact both companies. Several issues need to be managed to prevent the escape of synergy values. Managing the Process The integration of two companies is managed within a single, centralized structure in order to reduce duplication and minimize confusion. A centralized structure is also needed to pull everything together since the integration process tends to create a lot of divergent forces. A Senior Project Team will be responsible for managing post merger integration (PMI). This includes things like coordination of projects, assigning task, providing support, etc. As previously indicated, it is important for both senior management and middle management to share in the integration process: Senior ManagementSenior Project Team Cultural & Social IntegrationFunctional Integration Strategic Fit between the CompaniesSelection of Best Practices CommunicationSet up Task Forces Identify Critical Issues Problem Solving The Senior Project Team will consist of representatives from both companies, covering several functional areas (human resources, marketing, operations, finance, etc. ). Team members should have a very strong understanding of the business since they are trying to capture synergy values throughout PMI. Special task forces will be established by the Senior Project Team to integrate various functions (finance, information technology, human resources, etc. ). Task forces are also used to address specific issues, such as customer retention, non-disruption of operations, retention of key personnel, etc. Task forces can create sub-teams to split an issue by geographic area, product line, etc. All of these teams must have a clear understanding of the reasons behind the merger since it is everybody's job to capture synergies. There is no way senior management can fully identify all of the expected synergies from a merger and acquisition. It is not unusual for some task forces to begin meeting before the merger is announced. If integration begins before announcement of the merger, team members will have to act in a confidential manner, exercising care on who they share information with. The best approach is to act as though a merger will not take place. Example 17 – Timeline leading up to Post Merger Integration (PMI) June 21, 1998: Officers from both companies plan post merger integration. July 17, 1998: Orientation meeting for key management personnel from both companies. July 30, 1998: Project Managers are assigned to Task Forces. August 16, 1998: Launch Task Forces. August 27, 1998: Critical Issues are identified by Task Forces. Set goals and time frames. October 26, 1998: Task Force develops detail plan for PMI. October 30, 1998: Reach consensus on final plan. November 6, 1998: Officers from both companies approve detail integration plans. November 11, 1998: Operating (action steps) are outlined for implementing the PMI Plan. January 17, 1999: Begin Post Merger Integration Example 18 – Outline for Post Merger Integration (PMI) by Senior Task Force or Senior Project Team 1. Assess current situation – where do we stand? 2. Collect information and identify critical issues for integration. 3. Develop plans to resolve critical issues. 4. Obtain consensus and agree on PMI Plan. 5. Train personnel, prepare for integration, work out logistics, map out the process, etc. 6. Implement PMI Plan – conduct meetings, setup teams, provide direction, make key decisions, etc. 7. Revise the PMI Plan – measure and monitor progress, make adjustments, issue progress reports to executive management, etc. . Delegate – Move the integration process down into lower levels of the organization, allow staff personnel to control certain integration decisions, etc. 9. Complete – Move aggressively into full integration, coordinate and communicate progress until integration is complete. Decision Making Post merger integration (PMI) will require very quick decision-making. This is due in part to the fact that fast integration's work better than slow integration's. The new organization has to be established quickly so people can get back to servicing customers, designing products, etc. The more time people spend thinking about the merger, the less likely they will perform at high levels. Many decisions within PMI will be difficult, such as establishing the new organizational structure, re-assigning personnel, selling-off assets, etc. However, it is necessary to get these decisions behind you as quickly as possible since the synergy meter is running. In addition, failure to act will leave the impression of indecisiveness and inability to manage PMI. In order to make decisions, it is necessary to define roles; people need to know who is in charge. People who are responsible for integration should be highly skilled in coordinating projects, leading people, and thinking on their feet while staying focused on the strategies behind the merger and acquisition. People Issues Productivity and performance will usually drop once a merger is announced. The reason is simple; people are concerned about what will happen. In the book The Complete Guide to Mergers and Acquisitions, the authors note that â€Å"at least 360,000 hours of lost productivity can be lost during an acquisition of just a thousand person operation. † Quick and open communication is essential for managing people issues. Constant communication is required for addressing the rumors and questions that arise within PMI. People must know what is going on if they are expected to remain focused on their jobs. Communication should be deep and broad, reaching out to as many people as possible. Face to face communication works best since there is an opportunity for feedback. Even cursory communication is better than no communication at all. â€Å"Get all the facts out. Give people the rationale for change, laying it out in the clearest, most dramatic terms. When everybody gets the same facts, they'll generally come to the same conclusion. Only after everyone agrees on the reality and resistance is lowered can you get buy-in to the needed changes. † – Jack Welch, CEO, General Electric It is also a good idea to train people in change management. Most people will lack the knowledge and skills required for PMI. Immediately after the merger is announced, key personnel should receive training in how to manage change and make quick decisions. People must feel competent about their abilities to pull off the integration. Managing Resistance The failure to manage resistance is a major reason for failed mergers. Resistance is natural and not necessarily indicative of something wrong. However, it cannot be ignored. Four important tools for managing resistance are: Communicate: As we just indicated, you have to make sure people know what is going on if you expect to minimize resistance. Rumors should not be the main form of communication. The following quote from a middle level manager at a meeting with executive management says it all: â€Å"How can I tell my people what needs to be done to integrate the two companies, when I have heard nothing about what is going on. † Training: As we just noted, people must possess the necessary skills to manage PMI. Investing in people through training can help achieve â€Å"buy-in† and thus, lower resistance. Involvement: Resistance can be reduced by including people in the decision making process. Active engagement can also help identify problem areas. Alignment: One way to buffer against resistance is to align yourself with those people who have accepted the merger. Ultimately, it will be the non-resistors who bring about the integration. Do not waste excessive resources on detractors; they will never come around. Closing the Cultural Gap One of the biggest challenges within PMI is to close the cultural divide between the two companies. Cultural differences should have been identified within Phase II Due Diligence. One way of closing the cultural gap is to invent a third, new corporate culture as opposed to forcing one culture onto another company. A re-design approach can include: ? Reducing the number of rules and policies that control people. In today's empowered world, it has become important to unleash the human capacities within the organization. ? Create a set of corporate policies centered around the strategic goals and objectives of the new organization. ? Implement new innovative approaches to human resource management, such as the 360-degree evaluation. Eliminate various forms of communication that continue with the â€Å"old way† of doing things. ? Re-enforce the new ways with incentive programs, rewards, recognition, special events, etc. Specific Areas of Integration As we move forward with the integration process, a new organizational structure will unfold. There will be new reporting structures based on the needs of the new company. Structures are built around workflows. For best results, collaboration should take place between the two companies; mixing people, combining offices, sharing facilities, etc. This collaboration helps pull the new organization together. As noted earlier, a centralized organization will experience less difficulty with PMI than a decentralized organization. Collaboration is also enhanced when there are: ? Shared Goals – The more common the goals and objectives of the two companies, the easier it is to integrate the two companies. ? Shared Cultures – The more common the cultures of the two companies, the easier the integration. ? Shared Services – The closer both company's can come to developing a set of shared services (human resource management, finance, etc. ), the more likely synergies can be realized through elimination of duplicative services. Many functional areas will have to be integrated. Each will have its own integration plan, led by a Task Force. Two areas of concern are compensation and technologies. Compensation Plans: It is important to make compensation plans between the two companies as uniform as possible. Failure to close the compensation gap can lead to division within the workforce. Compensation plans should be designed based on a balance between past practices and future needs of the company. Since lost productivity is a major issue, compensation based on performance should be a major focus. Technologies: When deciding which information system to keep between the two companies, make sure you ask yourself the following questions: ? Do we really need this information? ? Is the information timely? ? Is the information accurate? ? Is the information accessible? One of the misconceptions that may emerge is to retain the most current, leading-edge technology. This may be a mistake since older legacy systems may be well tested and reliable for future needs of the organization. If both systems between the two companies are outdated, a whole new system may be required. Retaining Key Personnel Mergers often result in the loss of key (essential) personnel. Since synergies are highly dependent upon quality personnel, it will be important to take steps for retaining the high performers of the Target Company. The first step is to identify key personnel. Ask yourself, if these people were to leave, what impact would it have on the company? For example, suppose a Marketing Manager decided to resign, resulting in the loss of critical customers. Other people may be critical to strategic thinking and innovation. Once you have a list of key personnel, the next step is to determine what motivates essential personnel. Some people are motivated by their work while others are interested in climbing the corporate ladder. Retention programs are designed around these motivating factors. The third step is to implement your retention programs. Personally communicate with key personnel; let them know what their position will be in the new company. If compensation is a motivating factor, offer key personnel a â€Å"stay† bonus. If people are motivated by career advancement, invite them to important management meetings and have them participate in decision making. Don't forget to reinforce retention by recognizing the contributions made by key personnel. It is also a good idea to recruit key personnel just as if you would recruit any other key management position. This solidifies the retention process. Finally, you will need to evaluate and modify retention programs. For example, if key people continue to resign, then conduct an exit interview and find out why they are leaving. Use this information to change your retention programs; otherwise, more people will be defecting. Retaining Customers Mergers will obviously create some disruptions. One area where disruptions must be minimized is customer service. Once a merger is announced, communicate to your customers, informing them that products and services will not deteriorate due to the merger. Additionally, employees directly involved with customer service cannot be distracted by the merger. If customers are expected to defect, consider offering special deals and programs to reinforce customer retention. As a minimum, consider setting up a customer hotline to answer questions. Finally, do not forget to communicate with vendors, suppliers, and others involved in the value chain. They too are your customers. Measuring PMI The last area we want to touch on is measurement of post merger integration (PMI). Results of the integration process need to be captured and measured so that you can identify problem areas and make corrections. For example, are we able to retain key personnel? How effective is our communication? We need answers to these types of questions if we expect success in PMI. One way of ensuring feedback is to retain the current measurement systems that are in place; especially those involved with critical areas like customer service and financial reporting. Day to day operations will need to be monitored for sudden changes in customer complaints, return merchandise, cancelled orders, production stoppages, etc. New measurements for PMI will have to be simple and easy to deploy since there is little time for formal design. For example, in one case the PMI relied on a web site log to capture critical data, identify synergy projects, and report PMI progress. On-line survey forms were used to solicit input and identify problem areas. A clean and simple approach works best. A measurement system starts with a list of critical success factors (CSF) related to PMI. These CSF's will reflect the strategic outcomes associated with the merger. For example, combining two overlapping business units might represent a CSF for a merger. From these CSF's, we can develop key performance indicators. Collectively, a complete system known as the Balanced Scorecard can be used to monitor PMI. Process leaders are assigned to each perspective within the scorecard, collecting the necessary data for measurement. Example 19 – Balanced Scorecard for Post Merger Integration (PMI) PerspectiveKey Performance Indicator Customers- Retention of Existing Customers – Efficiency in Delivering Services Financial- Synergy Components Captured to Date â€Å"- Timely Financial Reporting â€Å"- Timely Cash Flow Management Operational- Completion of Systems Analysis â€Å"- Reassignments to all Operating Units â€Å"- Resources Allocated for Workloads Human Resource- Percentage of Personnel Defections â€Å"- Change Management Training â€Å"- Communication Fe edbacks Organizational- Cultural Gaps between company's â€Å"- Number of Critical Processes Defined â€Å"- Lower level involvement in integration Chapter 7 Anti-Takeover Defenses Throughout this entire short course (parts 1 & 2), we have focused our attention on making the merger and acquisition process work. In this final chapter, we will do just the opposite; we will look at ways of discouraging the merger and acquisition process. If a company is concerned about being acquired by another company, several anti-takeover defenses can be implemented. As a minimum, most companies concerned about takeovers will closely monitor the trading of their stock for large volume changes. Poison Pills One of the most popular anti-takeover defenses is the poison pill. Poison pills represent rights or options issued to shareholders and bondholders. These rights trade in conjunction with other securities and they usually have an expiration date. When a merger occurs, the rights are detached from the security and exercised, giving the holder an opportunity to buy more securities at a deep discount. For example, stock rights are issued to shareholders, giving them an opportunity to buy stock in the acquiring company at an extremely low price. The rights cannot be exercised unless a tender offer of 20% or more is made by another company. This type of issue is designed to reduce the value of the Target Company. Flip-over rights provide for purchase of the Acquiring Company while flip-in rights give the shareholder the right to acquire more stock in the Target Company. Put options are used with bondholders, allowing them to sell-off bonds in the event that an unfriendly takeover occurs. By selling off the bonds, large principal payments come due and this lowers the value of the Target Company. Golden Parachutes Another popular anti-takeover defense is the Golden Parachute. Golden parachutes are large compensation payments to executive management, payable if they depart unexpectedly. Lump sum payments are made upon termination of employment. The amount of compensation is usually based on annual compensation and years of service. Golden parachutes are narrowly applied to only the most elite executives and thus, they are sometimes viewed negatively by shareholders and others. In relation to other types of takeover defenses, golden parachutes are not very effective. Changes to the Corporate Charter If management can obtain shareholder approval, several changes can be made to the Corporate Charter for discouraging mergers. These changes include: Staggered Terms for Board Members: Only a few board members are elected each year. When an acquiring firm gains control of the Target Company, important decisions are more difficult since the acquirer lacks full board membership. A staggered board usually provides that one-third are elected each year for a 3 year term. Since acquiring firms often gain control directly from shareholders, staggered boards are not a major anti-takeover defense. Super-majority Requirement: Typically, simple majorities of shareholders are required for various actions. However, the corporate charter can be amended, requiring that a super-majority (such as 80%) is required for approval of a merger. Usually an â€Å"escape clause† is added to the charter, not requiring a super-majority for mergers that have been approved by the Board of Directors. In cases where a partial tender offer has been made, the super-majority requirement can discourage the merger. Fair Pricing Provision: In the event that a partial tender offer is made, the charter can require that minority shareholders receive a fair price for their stock. Since many states have adopted fair pricing laws, inclusion of a fair pricing provision in the corporate charter may be a moot point. However, in the case of a two-tiered offer where there is no fair pricing law, the acquiring firm will be forced to pay a â€Å"blended† price for the stock. Dual Capitalization: Instead of having one class of equity stock, the company has a dual equity structure. One class of stock, held by management, will have much stronger voting rights than the other publicly traded stock. Since management holds superior voting power, management has increased control over the company. A word of caution: The SEC no longer allows dual capitalization's; although existing plans can remain in effect. Recapitalizations One way for a company to avoid a merger is to make a major change in its capital structure. For example, the company can issue large volumes of debt and initiate a self-offer or buy back of its own stock. If the company seeks to buy-back all of its stock, it can go private through a leveraged buy out (LBO). However, leveraged recapitalizations require stable earnings and cash flows for servicing the high debt loads. And the company should not have plans for major capital investments in the near future. Therefore, leveraged recaps should stand on their own merits and offer additional values to shareholders. Maintaining high debt levels can make it more difficult for the acquiring company since a low debt level allows the acquiring company to borrow easily against the assets of the Target Company. Instead of issuing more debt, the Target Company can issue more stock. In many cases, the Target Company will have a friendly investor known as a â€Å"white squire† which seeks a quality investment and does not seek control of the Target Company. Once the additional shares have been issued to the white squire, it now takes more shares to obtain control over the Target Company. Finally, the Target Company can do things to boost valuations, such as stock buy-backs and spinning off parts of the company. In some cases, the target company may want to consider liquidation, selling-off assets and paying out a liquidating dividend to shareholders. It is important to emphasize that all restructurings should be directed at increasing shareholder value and not at trying to stop a merger. Other Anti Takeover Defenses Finally, if an unfriendly takeover does occur, the company does have some defenses to discourage the proposed merger: 1. Stand Still Agreement: The acquiring company and the target company can reach agreement whereby the acquiring company ceases to acquire stock in the target for a specified period of time. This stand still period gives the Target Company time to explore its options. However, most stand still agreements will require compensation to the acquiring firm since the acquirer is running the risk of losing synergy values. 2. Green Mail: If the acquirer is an investor or group of investors, it might be possible to buy back their stock at a special offering price. The two parties hold private negotiations and settle for a price. However, this type of targeted repurchase of stock runs contrary to fair and equal treatment for all shareholders. Therefore, green mail is not a widely accepted anti-takeover defense. 3. White Knight: If the target company wants to avoid a hostile merger, one option is to seek out another company for a more suitable merger. Usually, the Target Company will enlist the services of an investment banker to locate a â€Å"white knight. † The White Knight Company comes in and rescues the Target Company from the hostile takeover attempt. In order to stop the hostile merger, the White Knight will pay a price more favorable than the price offered by the hostile bidder. 4. Litigation: One of the more common approaches to stopping a merger is to legally challenge the merger. The Target Company will seek an injunction to stop the takeover from proceeding. This gives the target company time to mount a defense. For example, the Target Company will routinely challenge the acquiring company as failing to give proper notice of the merger and failing to disclose all relevant information to shareholders. 5. Pac Man Defense: As a last resort, the target company can make a tender offer to acquire the stock of the hostile bidder. This is a very extreme type of anti-takeover defense and usually signals desperation. One very important issue about anti-takeover defenses is valuations. Many anti-takeover defenses (such as poison pills, golden parachutes, etc. ) have a tendency to protect management as opposed to the shareholder. Consequently, companies with anti-takeover defenses usually have less upside potential with valuations as opposed to companies that lack anti-takeover defenses. Additionally, most studies show that anti-takeover defenses are not successful in preventing mergers. They simply add to the premiums that acquiring companies must pay for target companies. Proxy Fights One last point to make about changes in ownership concerns the fact that shareholders can sometimes initiate a takeover attempt. Since shareholders have voting rights, they can attempt to make changes within a company. Proxy fights usually attempt to remove management by filling new positions within the Board of Directors. The insurgent shareholder(s) will cast votes to replace the current board. Proxy fights begin when shareholders request a change in the board. The next step is to solicit all shareholders and allow them to vote by â€Å"proxy. † Shareholders will send in a card to a designated collector (usually a broker) where votes are tallied. Some important factors that will influence the success of a proxy fight are: 1. The degree of support for management from shareholders not directly involved in the proxy fight. If other shareholders are satisfied with management, then a proxy fight will be difficult. 2. The historical performance of the company. If the company is starting to fail, then shareholders will be much more receptive to a change in management. 3. A specific plan to turn the company around. If the shareholders who are leading the proxy fight have a plan for improving performance and increasing shareholder value, then other shareholders will probably support the proxy fight. Proxy fights are less costly than tender offers in changing control within a company. However, most proxy fights fail to remove management. The upside of a proxy fight is that it usually brings about a boost in shareholder value since management is forced to act on poor performance. It is worth noting that proxy fights are sometimes led by former managers with the Target Company who recognize what needs to be done to turn the company around. In any event, studies clearly show that changes in management are much more likely to occur externally (tender offers) as opposed to internally (proxy fights). Course Summary A merger is like a marriage; the two partners must be compatible. Each side should add value so that together the two are much stronger. Unfortunately, many mergers fail to work. Overpaying for the acquisition is a common mistake because of an incomplete valuation model. Therefore, it is essential to develop a complete valuation model, including analysis under different scenarios with recognition of value drivers. A good starting point for determining value is to extend the Discounted Cash Flow Model since it corresponds well to market values. Core value drivers (such as free cash flows) should be emphasized over traditional type earnings (such as EBITDA). Some key points to remember in the valuation process include: 1. Most valuations will focus on valuing the equity of the Target Company. 2. The discount rate used should match-up with the associated risk of cash flows. . The forecast should focus on long-term cash flows over a period of time that captures a normal operating cycle for the company. 4. The forecast should be realistic by fitting with historical facts. 5. A comprehensive model is required based on an understanding of what drives value for the company. 6. The final forecast should be tested against independent sources. If pre merger pha ses are complete, we can move forward to integrate the two companies. This will require the conversion of information systems, combining of workforces, and other projects. Many failures can be traced to people problems, such as cultural differences between the companies, which can lead to resistance. Additionally, if you fail to retain key personnel, the integration process will be much more difficult. The best defense against personnel defections is to have a great place to work. If the company has a bad reputation as an employer, then defections will surely occur. Some of the risk factors associated with post merger integration are: 1. What level of integration do we implement? 2. What can we do to retain key personnel? 3. How serious are the cultural differences between the companies? . What kinds of conflicts and competition can we expect during integration? 5. To what extent do the people of both company's understand the merger? 6. Who will govern and control the new company? Success with post merger integration is improved when: 1. The two companies have a history of effective planning and strategizing. 2. The two companies have a history of succ essful change management. 3. The merger will improve the strategies

Stillbirth Fetus Death - Free Essay Example

Sample details Pages: 19 Words: 5654 Downloads: 7 Date added: 2017/06/26 Category Statistics Essay Did you like this example? Abstract: Feto-infant mortality is increasing worldwide. Stillbirth is defined as uterofetal death at 20 weeks of gestation or greater. Stillbirths contribute as a primary factor to the growing magnitude of feto-infant mortality. The reasons for stillbirth are usually not reported. In many cases, the specific cause of fetal death remains unknown. The key risk factors include smoking, increased maternal age, being overweight, fetal-maternal hemorrhage. Even though there has been remarkable development in prenatal and intranatal care, stillbirths have been consistently increasing and remain an important problem in obstetrics and gynecology. Current research studies focus mainly on the epidemiology of stillbirths. I review the known and suspected causes of stillbirth. It also describes the recommended diagnostic tests to evaluate definite cause of stillbirth. In this paper, I also review analysis of stillbirths in the United States (US). The National Center of Health Statistics recorded 26,359 stillbirths in 2001. The number of stillbirths can be greatly reduced if the specific reasons for stillbirth are understood. Don’t waste time! Our writers will create an original "Stillbirth Fetus Death" essay for you Create order Introduction: A pregnancy ending in stillbirth can be mentally devastating to a patient and her family. The most widely accepted definition of stillbirth is death of the fetus inside the uterus at 20 weeks of gestation or greater (Cartlidge et al., 1995). Much information is available on protocols for evaluating other types of postmortem examination but little work has been done on the evaluation of the causes of stillbirths (Mirlene et al., 2004). No universally followed protocol is available to guide the evaluation of stillbirths. In part because a wide variety of causes can be involved in stillbirths and it can be difficult to designate a specific cause of death. A stillbirth might result from various diseases, infections, trauma or genetic defects in the mother or fetus (Gardosi et al., 2005). In many cases, a specific reason is not known. Even though stillbirths are a serious problem, few resources have been focused on them and most obstetricians lack a sound method of evaluating of stillbirths (Petersson, 2002). In this document, I will review the accepted causes of still birth and the suggested diagnostic tests for evaluating the reason behind stillborn infants. In the year 2001 in the US, the National Center of Health Statistics recorded 26,359 stillbirths (Ananth et al., 2005). When compared to 27,568 infant deaths were reported in the same year. More than half of the stillbirths are before 28 weeks of gestation and almost 20% are close to the term. If a history of stillbirth exists then there is a 5-fold increase for subsequent stillbirth to occur. Prominent racial discrimination occurs in the rates of stillbirths. Stillbirths are almost three times more prevalent in African Americans when compared to whites (Puza et al., 2006). In 2001, the rate of stillbirths among white mothers was 5.5 per 1000 live births and 12.1 per 1000 among the black mothers. According to an analysis of U.S. vital statistics between 1995 and 1998, the increased risk of black, compared with white, stillbirths is greatest among singleton stillbirths (Puza et al., 2006). Reduction of proportion of fetal deaths at gestation of 20weeks or longer to 4.1 per 1000 live births and also reduction of fetal deaths for all racial and ethnic groups are the objectives of U.S. National Health for 2010. Categorization of Stillbirths: Different attempts were made in order to classify causes of stillbirth. Baird and his colleagues were among the first to classify the causes of perinatal death from the available clinical information. Depending on the British perinatal mortality survey, in 1958 Butler and Bonham designed a classification scheme that included the results of postmortem examinations. The most widely used is the 9 category classification system formulated by Wigglesworth and his coworkers (Wigglesworth, 1980). A new classification scheme which does not include neonatal deaths was proposed by Gardosi and his colleagues known as the ReCoDe Classification which focuses on the relevant conditions at the time of death in the uterus. It includes factors which affect the fetus followed by the factors which affect the mother (Gardosi et al., 2005). When compared with the Wigglesworth classification, a remarkable decrease in the number of unclassified stillbirth was achieved using this classification. One of the most vital aspects is to develop a proper definition of the factors that lead to death of the fetus. The basic definition for the cause of death is injury or disease responsible for a death. Froendefined cause of death in stillbirth as an event or condition of sufficient severity, magnitude, and duration for death to be expected in a majority of such cases in a continued pregnancy in the clinical setting where it was observed (Froen, 2002). When the definition of cause of death is reviewed, it is observed that only a few disorders are directly responsible for fetal death while many others are not. Causes of Stillbirth: Infection: Infections such as viral, protozoal and bacterial are linked with stillbirth. Almost 10-25% of stillbirths result from feto-maternal infections in the developed countries where as bacterial infections are common in developing countries (Goldenberg et al., 2003). Stillbirths that result from infection might be due to various factors which include direct infection, placental damage, and severe maternal illness. Usually the stillbirths in the initial weeks of gestation are linked with infection. Bacterial infections caused by Escherichia coli, group B streptococci, and Ureaplasma urealyticum are a cause of stillbirth in developed countries (Goldenberg et al., 2003). If syphilis epidemic occurs in an area then it might be the cause of a considerable proportion of stillbirths. If women come in contact with a parasite like malaria for the first time then stillbirth might be attributed to it. Toxoplasma gondii, leptospirosis, Listeria monocytogenes, Q fever, and Lyme disease are associated with the occurrence of stillbirth (Goldenberg et al., 2003). The magnitude of stillbirths due to viral infections is not known mainly due to the absence of a well defined systematic evaluation of infections in stillborn infants. The problem lies behind the fact that these viruses are difficult to culture and moreover, a positive viral serological diagnostic test identifying the DNA or RNA of the virus in the fetal tissue or placental tissue does not definitely determine that infection was the reason behind death. In most of the cases, infection is linked with stillbirth in early gestational weeks around twenty weeks. If molecular diagnostic technology (DNA and RNA polymerase chain reaction [PCR]) is utilized, it will help in diagnosis of viral infections without any error. Parvovirus B-19 appears to have the strongest association with stillbirth. According to a Swedish survey, in 8%of stillbirths B-19 PCR positive tissues were observed (Enders et al., 2004). In the United States, less than 1% of all stillbirths are reported to be due to parvovirus infection Parvovirus B19 moves across the placenta spreading the infection to fetal erythropoetic tissue resulting in fetal anemia leading to fetal death (Wapner et al., 2002). Myocardial damage may also occur due to Parvovirus B19. Here the virus directly attacks the fetal cardiac tissue. Parvovirus infection that leads to stillbirth usually occurs before 20 weeks of gestation (Wapner et al., 2002). Enteroviruses which include Coxsackie A and B, echoviruses and other enteroviruses are associated with stillbirth. Coxsackie viruses can cross the placenta and lead to villous necrosis, inflammatory cell infiltration, calcific pancarditis, and hydrops. Echovirus infection begins with severe maternal illness and finally ends with stillbirth. Cytomegalovirus (CMV) belongs to herpesvirus family and it is a congenital viral infection. Initially, the mother is infected and then it is transmitted to the fetus. CMV causes placental damage leading to intrauterine fetal growth restriction, but an association with stillbirth remains controversial (Goldenberg et al., 2003). Viral infections in the mother like rubella, mumps and measles are linked with stillbirth. If the vaccinations are administered on time then the proportion of stillbirths occurring due to infections can be reduced greatly. Genetics: Genetic causes are responsible for a considerable magnitude of stillbirths. 6- 12% of stillbirths attributed to genetic etiologies are due to karyotyping abnormalities. Due to the fact that in some of the cases cells cannot be cultured, karyotyping is not possible. Such factors alter the exact estimate of stillbirths resulting from chromosomal abnormalities. In stillborn fetuses which show apparent structural defects the probability of chromosomal abnormality is much higher when compared to normal stillborn fetuses. The usually focused abnormalities include monosomy X (23%), trisomy 21 (23%), trisomy 18 (21%), and trisomy 13 (8%). There are many instances where the karyotype of the stillborn is normal yet the cause of death is a genetic abnormality. Indeed, 25-35% of stillborn infants undergoing autopsy have intrinsic abnormalities (Wapner et al., 2002) .These include single malformations (40%), multiple malformations (40%), and deformations or dysplasia (20%) (Wapner et al., 2002). Almost 25% ofstillborns due to intrinsic defects show an abnormal karyotype whereas the rest of the 75% may have genetic defects which are not identifiable by the regular cytogenetic tests. This holds good for fetuses with multiple abnormalities. Single gene mutations may be responsible for death of the fetus in early weeks of development. Stillbirths in the midgestational weeks might be due to abnormal placental growth, development, or angiogenesis. Some autosomal recessive disorders including glycogen storage diseases and hemoglobinopathies have been reported as the cause of stillbirth (Wapner et al., 2002). In male fetuses, X-linked disorders may prove to be fatal. Many other genetic defects that are not recognized by the conventional cytogenetic diagnostics may lead to stillbirth. For example, conventional karyotype cannot identify chromosomal microdeletions that are linked with unexplained mental retardation. Confined placental mosaicism has also been associated with fetal growth impairment and stillbirth (Kalousek et al., 1994). Heritable Thrombophilia is another probable etiology of stillbirth.It is thought that placental infarction occurs due to thrombosis in the uteroplacental circulation leading to death. This poses concern over other thrombophilic defects and their effects on stillbirth. It is noteworthy that many heritable thrombophilias are common in normal individuals without a history of thrombosis or pregnancy loss (Rey et al., 2003). Even though many studies relate thrombophilias to fetal loss, most of the women with thrombophilias have healthy pregnancies with no lethal complications. It can be said that in the absence of any previous obstetric problems, thrombophilia will not result in stillbirth. Feto-maternal Hemorrhage: Feto-maternal hemorrhage has been linked to almost 3- 14% of all stillbirths which implies that it is responsible for a considerable number of stillbirths. Obstetric procedures such as external cephalic version and cesarean section lead to fetal maternal hemorrhage. Hemorrhage can also result due to placental abruption and/or abdominal trauma during pregnancy. Fetal maternal hemorrhage must be identified and quantitated using a proper dependable diagnostic test to attribute this reason behind the death of fetus. Hypoxia and anemia are indicators of death due to fetal hemorrhage. So, they should be confirmed by autopsy as in some normal cases too, few fetal cells can be seen in maternal blood. Maternal Features: Delayed child bearing or increased maternal age, prepregnancy obesity and stress are found to have their effects on the occurrence of stillbirth. The underlying mechanisms of action are unknown; however, with both obesity and delayed child-bearing on the rise, their importance as potential causes of stillbirth deserves greater attention (Cnattingius et al., 2002). Women whose only risk factor is being overweight have about a 2-fold increased risk of stillbirth (Nohr et al., 2005). Likewise, compared with women younger than 35 years of age, the stillbirth rate is increased 2- fold for women 35-39 years of age, and 3- to 4-fold for women aged 40 years old or olderwhereas some age-associated risk is due to higher rates of maternal complications, in uncomplicated pregnancies there may be a 50% increased risk associated only with maternal age 35 years or older (Nohr et al., 2005). Stress is a suspected cause of stillbirth which might occur as a result of a major life event (such as loss or poverty) (Huang et al., 2000) or through unexplained health changes related to adverse childhood experiences (Hillis et al., 2004). Different exposures are attributed to stillbirth. One of the most prevalent and preventable cause of stillbirth is cigarette smoking (Hillis et al., 2004). Smoking negatively affects fetal growth and oxygen supply to the tissues as it produces high levels of carboxyhemoglobin and decreases blood supply to the placenta. Smoking is also associated with increased risks of placenta previa and placental abruption and women who stop smoking in the first trimester have stillbirth rates equivalent to women who never smoked which indicates that quitting smoking in early pregnancy may significantly reduce the chances of occurrence of stillbirth (Hillis et al., 2004). A variety of complications result due to continuous exposure of different recreational drugs. Consumption of cocaine during pregnancy is also linked with stillbirth because it causes fetal growth restriction and/or abruption. The use of meth amphetamines leads to premature deliveries and stunted growth but its association with stillbirth remains unknown. In some cases, alcohol consumption during pregnancy has been associated with an increased risk of stillbirth (Mary et al., 2006). According to a study in Scandinavia, for women who consume less than 1 drink per week, the rate of stillbirth is 1.37 per 1000 births while the rate increases to 8.83 per 1000 births in women who consume 5 drinks or more per week. If smoking habits, caffeine intake, prepregnancy body mass index, marital status, occupational status, education, parity, and fetal gender are considered, the risk of stillbirth for women consuming 5 drinks or more per week was 2.96 (95% confidence interval 1.37 to 6.41) (Mary et al., 2006). Some studies show a protective effect on both stillbirth and fetal growth restriction rates if small amounts of alcohol are consumed during pregnancy (Mary et al., 2006). A link between pesticide exposure and stillbirth was observed by Pastore and his colleagues in 1997. Occupational exposures prove to be deleterious compared to residential exposure because the occupational exposures cause congenital abnormalities in addition to risk of stillbirth. A noteworthy fact is that the use of fertility drugs is also associated with stillbirths. This finding is problematic due to the fact that many women make use of fertility treatments to conceive. However, data on stillbirths due to exposures is obtained from retrospective studies which are prone to bias. The link between exposures and stillbirth should therefore be dealt with great attention and care. Maternal Diseases: Diabetes: There is always an increased danger of stillbirths in second and third trimester for mothers who are affected with type I or type II diabetes mellitus (DM) pregestationally. Even with modern obstetric care and diabetes management, stillbirth rates in women with type 2 DM have been reported to be 2.5-fold higher than nondiabetic women (Mary et al., 2006). The rate of stillbirth is the same between women with gestational diabetes (GDM) as well as normal women when the whole population is taken into account. The magnitude of danger involved with fetal death in women with type II DM is identical to women with GDM who in fact entered the pregnancy with undiagnosed type II DM. Therefore, women with GDM who have an undiagnosed type II DM are usually at a greater danger of encountering stillbirth. Examples of women with undiagnosed type II DM include history of GDM in previous pregnancies, high fasting glucose values;random glucose values greater than 200mg/dL or diagnosis of GDM early in pregnancy. The reason behind fetal death in late gestation in diabetic women is not known precisely. In addition to an increased risk of fetal death in diabetic women, there also exists a higher magnitude of danger associated with fetal abnormalities in these women compared to healthy women. Stress, hypertension and obesity complement each other in DM patients. In women with DM, there is a higher risk of stillbirth as it may lead to fetal abnormalities which may be either abnormally increased growth rate or retarded growth. To maintain the physiological range of the plasma glucose level, tremendous amounts of insulin is produced by the fetus resulting in fetal hyperglycemia. This fetal hyperglycemia is acquired from maternal hyperglycemia which finally results in fetal death due to excessive growth. The precise limit of plasma glucose level which poses a threat to the fetal life is not well defined. The most that could be done is to detect and deal with it using needed medications to lower the incidents of stillbirths.Many other maternal diseases have been linked to stillbirth, including thyroid disease, cardiovascular disease, asthma, kidney disease, and systemic lupus erythematosus (Simpson, 2002). These are subclinical diseases which in many cases has not been proven to be direct causes of stillbirth and women had normal pregnancies giving birth to healthy babies. Multiple Gestation and Stillbirth: Nearly 3% of all births and 10% of all stillbirths result from multiple pregnancies. According to national vital statistics, 1.8% of twin, 2.4% of triplet, 3.7% of quadruplet, and 5.6% of quintuplet fetuses suffered intrauterine fetal deaths (Salihu et al., 2003). The stillbirth rate among singleton pregnancies is approximately 0.5%. The reason behind fetal death in multiple pregnancies is difficult to be resolved when compared to singleton pregnancies. The broad causes of fetal death in multiple pregnancies include fetal growth retardation, preclamsia, abruption and cord accidents. It is vital to determine the chorionicity of multiple gestations as the rate of stillbirth is higher in monochorionic multiple gestations (Salihu et al., 2003) (Lynch et al., 2007). Assisted Reproductive Technology (ART) is an essential aspect in the occurrence of multiple pregnancies and stillbirth (Helmerhorst et al., 2004). Complications in Fetus: Fetal Growth Restriction: Some stillbirths result from fetuses which are smaller for a particular gestational age (SGA) compared to normal fetuses. Birth weight and risk of stillbirth are inversely proportional. If one increases, the other decreases. The main fact behind stillbirths in this condition is retardation of fetal growth and not the small size of fetus. An obstacle that occurs in determining the precise time of death of fetus due to SGA is the fact that the death might have occurred a long time before but the gestational age at the time of delivery is considered to be the time of death. This gives a false implication of the magnitude of stillbirths resulting from SGA. This problem can be solved by analysis of early and mid pregnancy placental hormones which are very specific for gestational periods (Smith et al., 2004). An evaluation of the amounts of these hormones relates directly to the time of death. Umbilical Cord Accidents: An increased number of stillbirths are due to accidents of umbilical cord like cord occlusion or blockage due to true knots, nuchal cords and compression of the cord. In almost 30% of normal healthy infant deliveries, nuchal cord and true knots in umbilical cords are observed. According to a study in Sweden, 9% of stillbirths were due to cord accidents (Petersson, 2002). Determination of cord accidents leading to fetal death by autopsy is smaller in proportion (up to 2.5%) (Horn et al., 2004). This difference indicates that in the absence of a proper cause, many times fetal death is attributed to cord entanglement. Due to the increased load of complications with live infants, little concern is expressed towards dead fetuses. In order to precisely relate a fetal death to cord accident, a clear indication of either hypoxic tissue injury or cord occlusion must be observed in autopsy. As nuchal cords are observed in normal deliveries also, the exact proportion of stillbirths due to cord accidents is biased. Obstetric Complications: Some of the obstetric complications are preclampsia, preterm premature rupture of membranes, preterm labor, cervical insufficiency, abruption, placenta previa, and vasa previa. These may either be direct or primary causes or may be indirect or secondary causes of stillbirth. Almost 10-19% of stillbirths occur due to abruption. Since cervical insufficiency or preterm labor lead to neonatal death, their role in causing stillbirth is not well defined. Evaluation of Stillbirth Stillbirth in itself may be emotionally devastating to many patients and their families. There the likelihood of carrying out genetic testing or autopsy on the fetus may not be readily agreeable from the family and culture. Lastly the procedures for evaluation must be cost effective and within reach. The two important facts that should be kept in mind while deciding which tests would prove as the most useful ones are primarily the consideration of cost of that test. It should not be beyond limits. Secondarily, if this test would be helpful in prevention of recurrent or sporadic stillbirths. In recurrent stillbirths, medical interference may prove helpful by preventing them in future. Analyzing the etiology of sporadic stillbirths might lead to reassurance and avoid irrelevant diagnostic tests in future pregnancies. The single most useful diagnostic test is a fetal autopsy (Peterson et al., 1999). Not only does the visible genetic and structural abnormalities but also an autopsy would be of great help in relating specific etiologies to stillbirth. The frequency of fetal autopsy is very less due to the fact that it is costly, not many trained pathologists are available and also it may be of great discomfort to the family and clinicians to deal with such a case. If autopsy is refused, partial autopsy or postmortem magnetic resonance imaging (MRI) scans may provide the necessary data. Embryonic membranes, placenta and umbilical cord must be physically and histologically examined while evaluating stillbirth etiology. This would give a precise cause of fetal death and might also provide clues for death due to secondary causes like infections, thrombophilia, and anemia. In most cases, families do not object on placental evaluation. In the cases where autopsy is not performed karyotyping the fetus would prove helpful. Cells and tissues from placenta (especially chorionic plate), fascia lata, skin from the nape of the neck, and tendons can be isolated and cultured and used for diagnostic tests like karyotyping. Comparative genomic hybridization shows tremendous promise for the identification of chromosomal abnormalities in stillbirths wherein fetal cells cannot be successfully cultured (Silver et al., 2006). An autopsy followed by a careful histological examination might help in relating stillbirths that result due to infections from the bacteria or virus. Parvovirus serology may be useful because this virus has been implicated in a meaningful proportion of cases (Erik et al., 2002). Diagnostic tests are performed for the detection of syphilis also since it contributes to the list of accepted causes of stillbirth. For various viral and protozoal agents like toxoplasmosis, rubella, cytomegalovirus (CMV) and herpes simplex virus (HSV) {TORCH}, serological screening is carried out. For bacterial and viral infections in the fetus, nucleic acid based tests are more helpful when compared to tissue cultures. Feto-maternal hemorrhage can be detected using Kleihauer Betke test (KBT). Most laboratories use manual KBT which is prone to error. It has been found that flow cytometry is a better tool in detecting fetal erythrocytes in maternal blood. In order to eliminate red cell alloimmunization as an etiology of stillbirth, an indirect Coombs test is performed. Autopsy and examination of placenta are helpful in this situation. During the initial prenatal visits, if the antibody screen comes out to be negative then there is a need for recurrent testing. Diagnostic tests for conditions like diabetes and heritable thrombophilias must be carried out on a regular basis to prevent any complications which may lead to stillbirth. The treatment of such conditions at the appropriate time may prevent similar complications in subsequent pregnancies. Heritable thrombophilia might be of concern in the cases where there is recurrent fetal loss or there is a history of thrombosis or with complications involving placental insufficiency like placental infarction and intrauterine growth restriction. Administration of illicit drugs through various modes may be a cause of stillbirth in many cases. Toxicological examination may reveal the results for women who are subjected to such exposures. A simple urinary examination may prove helpful. The advanced and cost effective technology like ELISA (Enzyme Linked Immuno Sorbent Assay) can be used to detect a variety of metabolites like steroids in various tissues like blood, hair, and homogenized umbilical cord. Conclusion: Many medical and nonmedical agents govern the best approach to evaluate a stillbirth. The obstacles faced by obstetricians in solving these issues include the fact that in most of the cases the reason behind fetal death is unknown. Also the magnitude of stillbirths resulting from a single cause is not known precisely. Here there arises a need for population based studies to attribute stillbirths to their specific etiologies. There is a clear cut need of experts in the field of perinatal pathology and the required funding should be provided at the national level to promote it. Moreover, the clinician should be aware of the history of pregnant women in better evaluation. In cases where the local clinicians cannot reach a conclusion, the tissue samples must be sent to senior pathologists who have a thorough command on the subject and can help in reaching decisive conclusions. A universally accepted protocol is required for a systematic evaluation of stillbirths. Due to its absence a difference of opinion occurs among the obstetricians and gynecologists. The institutions like Stillbirth Collaborative Research Network should formulate guidelines for the proper judgement of stillbirth etiologies. The responsibility lies in the hands of the clinicians to do the best they can to reach a definite conclusion from the available data. It is noteworthy that the proportion of stillbirths that are explained is much higher in centers using systematic evaluations for recognized causes and potential causes of stillbirth (Petersson, 2002) (Horn et al., 2004). In conclusion, autopsy, placental evaluation, karyotype, Kleihauer-Betke, antibody screen, and serologic test for syphilis are useful in evaluating the etiologies of stillbirth. Depending on the case, other relative tests should be performed. The approach towards the testing of potential causes of stillbirth is not clear if it should be very specific and sequential or should it be comprehensive which means that it is targeted towards a broad spectrum of causes. Each of these has its own advantage. Sequential testing avoids false positive results and is directed to a specific cause and more over, it is cost effective. Comprehensive testing may prove helpful in cases where more than one factor is responsible for stillbirth. The problem with autopsy, placental evaluation, karyotype, screen for fetal-maternal hemorrhage, and toxicology screen is that they are dependant on time, that is, these tests should be performed immediately after the delivery. Autopsy cannot be delayed because death of the fetus already occurred and this would lead to physiological changes in the whole body and decay begins. The necessary evidence for stillbirth is easily available from fresh samples of placenta and also for toxicology screen. As the time since death increases, the physiology of fetus also changes leading to false positive or false negative results. If the time of fetal examination is delayed, fetal hemorrhage may be mistaken for postmortem lividity. Therefore a serious call for action is expected from institutions like Stillbirth Collaborative Research Network (SCRN) which would help in creating the most applicable diagnostic setting for evaluation of stillbirth (Silver et al., 2006). SCRN was developed by the National Institute of Child Health and Human Development to target the range of etiologies of stillbirth in the U.S. The aim of SCRN is to focus on the following objectives. The use of standardized surveillance in a geographic catchment area will show that the stillbirth rates are greater than those reported in the vital statistics catchment. The use of a prospectively implemented, standardized, postmortem, and placental examination protocols will improve diagnosis of fetal or placental conditions that cause or contribute to stillbirth. Maternal biologic and environmental risk factors in combination with genetic predisposition increase the risk for stillbirth. This is a population based study which is carried out in different counties of different states in the U.S. This study would take into account all the stillbirths and live births occurring in rural as well as urban areas in different racial groups. Even though occurrence of stillbirths cannot be stopped completely, yet attempts of such sort can be made atleast to prevent them to a maximum extent. Glossary Abruptio placenta totalis A placental abruption is a serious condition in which the placenta partially or completely separates from the uterus before the baby is born. Achondrogenesis Dwarfism characterized by various bone aplasias and hypoplasias of the extremities and a short trunk with delayed ossification of the lower spine. Alloimmunization Development of antibodies in response to alloantigens; antigens derived from a genetically dissimilar animal of the same species. Angiogenesis The formation of new blood vessels. Anomaly abnormality Autosome a chromosome other than the X and Y sex-determining chromosomes. Camptomelia bending of the limbs that produce a permanent curving or bowing. Cholestasis a condition caused by rapidly developing or long-term interruption in the excretion of bile (a digestive fluid that helps the body process fat). Chondrodysplasia Congenital dwarfism similar to but milder than achondroplasia, not familial and not evident until mid-childhood, in which the skull and facial features remain normal. Chorioamnionitis Inflammation of the fetal membranes. Dystocia Difficult delivery or parturition. Erythema infectiosum mild infectious disease occurring mainly in early childhood, marked by a rosy-red maculopapular rash on the cheeks, often spreading to the trunk and limbs. Fever and arthritis may also be present. Erythropoetic production of red blood cells. Fascia lata the deep fascia of the thigh. Hydrops excessive accumulation of serous fluid in tissues or cavities of the body. Isoimmunization The development of specific antibodies as a result of antigenic stimulation using material derived from the red blood cells of another individual of the same species. Iatrogenic Induced in a patient by a physicians activity, manner, or therapy. Leptospirosis a febrile disease (fever) caused by infection with the bacteria Leptospira interrogans. Lividity discoloration of dependent parts by gravitation of blood. Monochorionic a single chorion. Neoplasia formation of new tissue. Oligohydramnios Deficiency in the amount of amniotic fluid. Placental mosaicism abnormal chromosomes in some or all placental tissue but not the fetus. Placental infarction blockage of blood circulation to the placenta resulting in tissue death. Polyhydramnios excess of amniotic fluid. Polysplenia multiple small accessory spleens. Preclamsia narrowing of blood vessels. Systemic lupus erythematosus a disease where a persons immune system attacks and injures the bodys own organs and tissues. Thrombophilia disorder of the hemopoietic system in which there is an increased tendency for thrombosis (blood clots). Vasa Previa condition in which fetal intramembranous blood vessels traverse the fetal membranes across the lower segment of the uterus between the fetus and the cervical opening. Velamentous Resembling a veil in shape and composition. References Cited: Ananth CV, Liu S, Kinzler WL, Kramer MS. Stillbirths in the United States, 1981-2000: An age, period, and cohort analysis. Am J Public Health 2005;95:2213-7. Cartlidge PH, Stewart JH., Effects of Changing the Stillbirth Definition on Evaluation of Perinatal Mortality Rates, ncbi, 346(8973): 486-8, 1995. Cnattingius S, Stephansson O. The epidemiology of stillbirth. Semin Perinatol 2002; 26:25-30. Enders M, Weidner A, Zoellner I, Searle K, Enders G. Fetal morbidity and mortality after acute human parvovirus B19 infection in pregnancy: prospective evaluation of 1018 cases. Prenat Diagn 2004;24:513-8. Erik D.H.and Kevin E. 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