Essay on The Decline of British Military Innovation

World War I was perhaps the greatest catalyst for military innovation in modern history. The speed in which the doctrinal, technical and tactical changes were developed and implemented was astounding. At the end of World War I, Britain was at the forefront of doctrinal and technological innovation in the field of armor and aircraft warfare. The factors which caused Britain to lose their innovative edge in these areas prior to World War II was the 10 year rule policy, operational attitude of the British Army, and an emphasis on land based aviation. At the conclusion of World War I, Britain had the largest navy in the world, a brand new Royal Air Force (RAF) and an army that had extended its technical, tactical and†¦show more content†¦The ten-year policy was used by the British Government to continually decrease defense spending until the policy was ended in 1932. The second factor that stifled the innovation of the British military is the operational attitude of the mi litary leadership. The British military failed to study the lessons learned from World War I until 1932. This failure to study the battles of the war in a timely manner resulted in the development of inferior doctrine and training concepts. If the lessons would have been learned earlier than 1932, substantial changes could have been made to the British doctrine and professional military education system prior to 1932. The structural, leadership and cultural changes to the British Army after World War I contributed to a pervasive disinterest in innovation. The ideas and attitudes of the military leadership remained those of the prewar army. Those who seemed to be innovators were outcast and the leadership of the British Army did not take their ideas seriously. Between 1923 and 1928, the British Army conducted numerous field exercises to determine the proper use of mechanized or armored forces. Although some shortfalls were identified in these maneuvers, the overall potenti al of armored forces was evident. These tests identified the tactical advantages of firepower and maneuver of armored forces and the considerable logistical andShow MoreRelatedThe First World War : A New Era Of Military Conflict1690 Words   |  7 PagesThe Great War ushered in a new era of military conflict. One that would see technology change how the militaries of the world waged war. Industrialization ushered in an era of rapid and continuous technological advance. These advances rapidly proliferated throughout the armies of the world. 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Discipleship Christianity and Jesus - 3114 Words

Discipleship Teachers around the time when Jesus lived thought that learning was such that the people who wanted to learn should come to them to be taught. But Jesus felt differently and rather than waiting for people to come to him, he went out to find them and then chose them to be his followers. He called them disciples and this word means one who learns. But Jesus chose his disciples carefully as we are told in Mark 1:16-20 and also in Mark 3:13-19. In the first passage, Jesus appoints his first four disciples, Simon, Andrew, James and John. Jesus said to them Come, follow me, and I will make you fishers of men. (Mark 1:17) In Mark 2:13-17, Jesus calls up the fifth disciple, Levi who was a tax collector, and Jesus later renamed him†¦show more content†¦It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God. Mark 10: 24-25. 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Analysis of Financial Performance of Pz Cussons 2012 Free Essays

ANALYSIS OF THE FINANCIAL PERFORMANCE OF PZ CUSSONS PLC AND RESEARCH MATRIX Background Information of the Company PZ Cussons Plc. is a UK based consumer products group. The principal activities of the group are the manufacture and distribution of soaps, detergents, toiletries, beauty products, pharmaceuticals, edible oils, fats, electrical goods and nutritional products. We will write a custom essay sample on Analysis of Financial Performance of Pz Cussons 2012 or any similar topic only for you Order Now The company’s products can therefore be categorised into personal care, home care, baby care, beauty products, food and nutrition and electrical goods. They have supply chain and distribution networks in Africa, Asia and Europe. Their mission is to enhance the lives of customers with quality, value and innovation. Their vision is to be a growing and dynamic company who are passionate about their leading brands and drive innovation in everything they do. The company has four major strategies which are operating in selected categories where their brands have a strategic advantage and offering growth opportunities which are profitable; operating in selected geographies either through their own infrastructure or through partnership; operating a flexible and evolving supply chain designed to service their categories and working with people who share their unique CAN DO values. The company’s major competitors are Mcbride Plc. , Kao UK Ltd, Creightons Plc. , and Swallowfield Plc. Marketline, 2012). Interpretation of Financial Statements Using Ratio Analysis Profitability Ratios These ratios measure the ability of a company to generate earnings in relation to its sales, assets and equity (Ready Ratios, 2012). 2012 2011 Return on Capital Employed 49. 6 = 8. 16% 107. 3 =16. 43% (PBIT/Total Assets-Current liabilities) 930. 5 – 322. 4 938. 5 – 285. 6 Return on Equity (ROE) 34. 4 = 7. 1% 70. 4 = 14. 85% (Profit after tax/Sha reholders’ funds) 458. 3 474 Operating Profit Margin 49. 6 = 5. 77% 107. 3 = 13. 1% (PBIT/Sales) 858. 9 820. 7 Gross Profit Margin 309. 2 = 40% 325. 2 = 39. 6% (Gross Profit/Sales) 858. 820. 7 Overheads/Sales 134 + 125. 4 = 30% 135 + 83. 3 = 26. 6% 858. 9 820. 7 Sales Growth 858. 9- 820. 7 = 4. 65% (Yr 2 Sales- Yr 1 Sales/ Yr 1 Sales) 820. 7 The ROE is low 7. 51%, down from 14. 85% in 2011 which shows that a much lower profit has been made on the shareholders’ investments. This is largely due to the decrease in profits for the year. The reduction in profit has also impacted on the ROCE which is down to 8. 16% from 16. 43% in 2011. There is a marginal increase in the gross margin. This is as a result of an increase in the cost of sales which could have been affected by the rise in costs of raw materials as pointed out in the Chairman’s statement and offset by a small 4. 65% increase in sales. The operating profit to sales has reduced drastically, as a result of a high increase in overheads and the revenue increase. The increase in overheads was due to exceptional items related to administrative expenses. From the annual report, it can be seen that there was a supply chain optimisation project initiated to tackle rising material costs, wage inflation in emerging markets and to reduce overheads of manufacturing activities. This project is an exceptional item included in the operating profit. Other exceptional items included are the acquisition of Fudge by the company and an impairment of the Australian home care brand due to worsening trade conditions. It could be said these are one-off items which impacted on overheads and resulted in a reduced operating profit for the year but the group will need to improve its margins and control overheads to enhance its profitability. Liquidity Ratios These ratios measure the ability of a company to meet its short term obligations as they fall due (Ready Ratios, 2012). 2012 2011 Current Ratio 393. 3 = 1. 22 417. 4 = 1. 46 (Current Assets/Current Liabilities) 322. 285. 6 Current Ratio excluding current debt 393. 3 = 1. 70 417. 4 = 1. 65 322. 4 – 90. 8 285. 6- 32. 5 Acid Test/ Quick Ratio 393. 3 – 173. 6 = 0. 68 417. 4 – 151. 7 = 0. 93 (CA – Inventories/ CL) 322. 4 285. 6 Acid test excluding current debt 393. 3 – 173. 6 = 0. 95 417. 4 – 151. = 1. 05 322. 4 – 90. 8 285. 6 – 32. 5 The current ratio has fallen from 1. 46 to 1. 22 likewise the acid test ratio which has fallen from 0. 93 to 0. 68. There is an increased inventory level which may justify the statement in the financial review that â€Å"there were high working capital levels especially in Nigeria†. Another aspect to consider is the cash balance which was significantly lower by 34. 6 % to the previous year. It is useful to consider the business context. From the same eview, it could be noted that some capital expenditure took place which affected the cash level, the major one being the acquisition of Fudge which was mentioned above and an investment in a joint venture. Another key cash outlay was their contribution to the closed UK salary scheme during the de-risking exercise. The ratios are also impacted by the inclusion of borrowings in current liabilities which means the debt is repayable in the current year. If the ratios are recalculated by excluding the current debt, the current ratio would be more acceptable 1. 70, a marginal increase from 2011. The acid test ratio excluding the borrowings is 0. 95, a marginal decrease from 1. 05. This is because for the acid test, current liabilities (excluding debt) have increased more than current assets (excluding inventory). Given the explanations stated, these ratios are probably good results but a trend analysis may shed more light on the ratios. Activity/ Efficiency Ratios These ratios analyse how well the company’s assets and liabilities are utilised (Collier, 2012). 2012 2011 Debtors Collection Period 114. = 49 days 122. 5 = 54 days (Trade Receivables/Sales) (858. 9/365) (820. 7/365) Payment Period 104 = 69 days 117. 8 = 87 days (Trade Payables/Cost of Sales) (549. 7/365) (495. 5/365) Asset Turnover 858. 9 = 92. 3 % 820. 7 = 87. 4% (Sales/Total Assets) 930. 5 938. 5 Inventory Turnover 549. 7 = 3. 16 x 495. 5 = 3. 26 x (Cost of Sales/Inventories) 173. 6 151. 7 365/3. 16 = 116 days 365/3. 26 = 112 days It may appear that the company is doing a good job at managing its receivables and payables with a decrease in both the collection and payment periods but knowledge of the credit limit and terms might have helped in analysing the situation as well as comparison with the industry average. Asset turnover has risen from 87. 4% to 92. 3% indicating that the company has been able to generate more sales with their asset base. This is as a result of an increase in sales revenue and a lower level of current assets, especially the decrease in cash level. Inventory turnover has declined from 112 days of inventory holding to 116 days. Both ratios are quite high which implies that inventory is been kept in the stores for a long time between its purchase and its sale. The company would need to be able to manage its inventories more efficiently. Gearing Ratios It measures the level of debt/borrowings in relation to shareholders’ equity (Collier, 2012). 2012 2011 Gearing 0 = 0 15 = 3% (Long term debt/equity + debt) 458. 3 + 0 474 + 15 Gearing (including current debt) 0 + 90. 8 = 16. 54% 15 + 32. 5 = 9. 87% 458. 3 + 0 + 90. 474 + 15 + 32. 5 Interest Cover 49. 6 = 13. 78 x 107. 3 = 41. 26 x (PBIT/Interest Payable) 3. 6 2. 6 The gearing is 0 for 2012 indicating that the debt is repayable within the current year. By including the current debt, the gearing ratio shows an increase from 9. 87% in 2011 to 16. 54% in 2012. This is a more realistic debt level as the Statement of Cash Flows in the annual report reveals a ? 9. 4m borrowing in 2012. The interest cover has declined from 41. 26 times to 13. 78 in 2012. This is due to the decrease in operating profits but nevertheless the interest cover is still healthy. Shareholder Return Ratios These ratios measure the return to shareholders on their investment in the business (C ollier, 2012). 2012 2011 Dividend per share (DPS) 6. 717p 6. 06p Market value per Share ? 3. 23 ? 3. 4 (Both disclosed in the annual report) Dividend payout ratio 28. 8 = 83. 72% 26 = 36. 93% (Dividends paid/Profit after tax) 34. 4 70. 4 Dividend yield ? 0. 06717 = 2. 08% ? 0. 0606 = 1. 66% (DPS/Market value per share) ? 3. 23 ? 3. 64 Earnings per share (EPS) (Disclosed in income statement) 8. 03p 16. 48p Price/earnings ratio ? 3. 23 = 40. 22 x ? 3. 64 = 22. 09 x (Market value per share/EPS) ? 0. 0803 ? 0. 1648 The earnings per share have greatly reduced from 16. 48 to 8. 03 due to the decrease in profits, as there has been no change in shareholder capital. The dividend paid has increased slightly, despite the fact that profits were low and this consumed a high portion of the after-tax profits as shown by the dividend payout ratio. This would suggest the company has a high shareholder value. The dividend yield is an effective interest rate which fluctuates in relation to the share price. The yield has increased slightly due to the marginal increase in dividends paid and the reduction in the market value of the shares. The price/earnings ratio has seen a dramatic increase from 22. 09 to 40. 22 which is largely due to the decrease in the EPS. It however reflects that investors may have a high expectation for future growth. Ratio analysis is more useful when the ratios are interpreted as a trend over time or by comparison to industry averages, to competitor ratios or to predetermined targets. As such, two years is too short to draw meaningful conclusions about the performance of the group (Collier, 2012). Below is a five year summary from which the trend can be understood more clearly. PZ Cussons Five-Year Summary of Performance |In ? m |2012 |2011 |2010 |2009 |2008 | |Sales Revenue |858. 9 |820. 7 |771. 6 |838. 1 |660. 9 | |Operating Profit |49. 6 |107. |101. 4 |86. 2 |76. 4 | |Operating Margin |5. 77% |13. 1% |13. 14% |10. 28% |11. 56% | |Sales growth (year on year) |4. 65% |6. 36% |-7. 93% |26. 8% |- | |Current Ratio |1. 22 |1. 46 |1. 84 |1. 94 |2. 25 | |Gearing |0 |3% |6. 19% |10. 3% |14. 66% | |Earnings per share |8. 03p |16. 48p |14. 89p |11. 64p |11. 04p | |Dividends per share |6. 717p |6. 61p |5. 90p |5. 27p |4. 70p | Note: The EPS and DPS were disclosed in the financial statement. Whilst the operating margin and sales growth are based on the information in the table which were also gotten from the company’s financials, the calculation of current and gearin g ratios are below: 010 2009 2008 Current ratio 403. 7/219. 1 354. 9/182. 6 327. 4/145. 4 Gearing 30/(458. 8 + 30) 44. 9/(389. 9+ 44. 9) 59. 9/(348. 7 + 59. 9) The figures show an increase in sales over the years with a sharp decrease from year 2009 to 2010, though a good operating margin was generated. This could imply that a low cost base was being maintained. There has been a steady improvement in profits with a substantial reduction in 2012 though there was a lower margin in 2009 which would suggest that profits as a return on sales was quite low. The EPS has increased year on year with a drastic decrease in 2012 due to lower profits. The DPS has increased marginally year on year which reflects a high shareholder value. The current ratio has declined over the years. It could be that there have been high inventory levels. It is vital to note that a working capital ratio that is too high may imply that the company is not utilizing its assets effectively as could have been the case in 2008. The company should seek to manage its working capital more efficiently. The gearing ratio has been on the decrease to a point of no long term debt in 2012. This may appear to be a good thing but it is worth noting that long term borrowings are needed to fund current assets. Research Matrix The matrix below shows a summary of the journal articles read in relation to this work. It identifies some themes found in the literature. The themes are ranked on a scale of importance with 1 being less important and 5 being extremely important to the analysis of my work. Authors of Journal Articles |Scale of Importance | | |1 |2 |3 |4 |5 | |Roman (2011) ; Sundkvist, Hedman| | |Profitability | | | |and Almstrom (2012) | | | | | | |Muradoglu, Bakke and Kvernes | | | |Gearing | | |(2005) | | | | | | |Cette, Durant and Vilette (2011)| | | | |Profitability : ROCE | |Koonce and Lipe (2010) | | | |Earnings | | |Bierman and Hass (2009) | |Earnings Growth | | | | |Banos-Caballero, Garcia-Teruel | | |Worki ng Capital | | | |and Martinez-Solano (2012) | | | | | | |De Wet and Du Toit (2007) | | | | |Profitability : ROE | |Lifland (2011) | | | |Working Capital | | |Dossi and Patelli (2010) |Non-financial | | | | | | |Measures | | | | | Explanation and Analysis of Research Matrix According to Sundkvist, Hedman and Almstrom (2012), the profitability of a company is driven by controllable factors which are the internal resources of the firm such as raw materials and uncontrollable factors such as government regulations. One way of increasing profitability is to reduce costs. In doing this, the costs have to be broken down and cost drivers identified (Roman, 2011; Sundkvist, Hedman and Almstrom, 2012). This theme is important as cost reduction is a crucial way to maintain profitability. In the case of PZ Cussons, the supply chain optimisation project was initialised to cut down on manufacturing overheads. Muradoglu, Bakke and Kvernes (2005), argue that gearing ratio is vital in apprasing bankruptcy risk and investors like a low gearing ratio as there is a lower risk that they lose money on their investments. This theme is very important as a very high gearing increases the financial risk of a company. Cette, Durant and Villetelle (2011) stress the limitation of ROCE in that when a firm’s future outlook is good and this in turns leads to an increase in assets and there is no change in profit, then the ratio goes down implying the firm is less profitable irrespective of better prospects. This is extremely important as it highlights issues that should be taken into account when interpreting this ratio. Koonce and Lipe (2010) argue that the earnings trend of a company affects the investors’ acumen about the future prospects of that company as such a positive earnings trend enhances the price-earnings ratio. This theme is very important as it helps in our understanding of the price-earnings ratio. According to Bierman and Hass (2009), EPS growth can be ascertained by the use of share/stock repurchase and the variations in the rates used in profit retention. He argues for the use of earnings growth models. This theme is of little important to my analysis as there was no share repurchase in the current year of PZ Cussons and growth models were not used in my work. Based on the research carried out by Banos-Caballero, Garcia-Teruel and Martinez-Solano (2012), they claim that a high investment in working capital has the ability to improve the performance of a firm in profit-terms up to an optimal point at which higher working capital levels would have a negative effect on performance and this point is reached when the cost of holding working capital exceed the benefits. This theme is important as it seeks to explain working capital management. De Wet and Du Toit (2007) emphasise the pitfalls of return on equity measure. As such the earnings figure can be subject to manipulation legally due to changes in accounting policy. This is extremely important as it cautions us in our interpretation of the ROE. Lifland (2011) argues that effective working capital management is characterised by an increase in asset turnover and a decrease in receivables and inventories. He also highlights the fact that companies may have to seek external finance to meet working capital requirements. This is very important as it seeks to give insight on the interpretation of working capital ratios In determining financial performance, it is also useful to consider non-financial measures such as employee and customer satisfaction as well as measuring business processes. Though these are supplementary measures, they cannot be substituted for financial measures (Dossi and Patelli, 2010). It is good to draw attention to this but it is of less importance to my work as I only consider the financial ratios. It is crucial to bear in mind that there are limitations inherent in the use of ratio analysis, some of which were pointed above. Another factor is that they are based on historical records. The values could be affected by inflation so it is useful to modify the profits to reflect holding gains and losses which result from variation in the value of assets and liabilities (Cette, Durant and Villetelle, 2011). Despite all this, ratios remain a significant tool in analysing financial statements (Collier, 2012). Based on my analysis, PZ Cussons seems to performing quite well; the business environment and the challenges in the different divisions might account for the lower performance this year. However, it is vital to note that this analysis was based on annual reports which are produced in part for public relations. As such companies seek to promote their interests therein. To fully understand the company performance, an evaluation of the industry information and competitor performance would be required. References: Banos-Caballero, S. , Garcia-Teruel, P. and Martinez-Solano, P. (2012) â€Å"How does working capital management affect the profitability of Spanish SMEs? † Small Business Economics, vol. 39, no. 2, pp. 517-529. Bierman Jr , Harold and Hass, J. E. (2009) â€Å"Explaining Earnings Per Share Growth†, Journal of Portfolio Management, vol. 35, no. 4, pp. 166-169. Cette, G. , Durant, D. and Villetelle, J. (2011) â€Å"Asset Price Changes and Macroeconomic Measurement of Profitability†, Review of Income Wealth, vol. 57, no. 2, pp. 364-378. Collier, P. M. (2012) Accounting for Managers Interpreting Accounting Information for Decision Making 4th edn. Sussex: John Wiley Sons. De Wet, J. H. V. H. and Du Toit, E. (2007) â€Å"Return on equity: A popular, but flawed measure of corporate financial performance†, South African Journal of Business Management, vol. 38, no. 1, pp. 59-69. Dossi, A. and Patelli, L. 2010) â€Å"You Learn From What You Measure: Financial and Non-financial Performance Measures in Multinational Companies†, Long range planning, vol. 43, no. 4, pp. 498-526. Koonce, L. and Lipe, M. G. (2010) â€Å"Earnings Trend and Performance Relative to Benchmarks: How Consistency Influences Their Jo int Use†, Journal of Accounting Research, vol. 48, no. 4, pp. 859-884. Lifland, S. A. (2011) â€Å"The Corporate Soap-Opera â€Å"As the Cash Turns†: Management of Working Capital and Potential External Financing Needs†, Review of Business, vol. 32, no. 1, pp. 35-46. Marketline (2012) ‘Company Profile PZ Cussons Plc’. Marketline Report [Online]. Available at www. marketline. com (Accessed: 7 November 2012). Muradoglu, G. , Bakke, M. nd Kvernes, G. L. (2005) â€Å"An investment strategy based on gearing ratio†, Applied Economics Letters, vol. 12, no. 13, pp. 801-804. PZ Cussons (2012) Annual Reports and Accounts. Available at http://www. pzcussons. com/pzc/ir/reports (Accessed: 6 November 2012). Ready Ratios (2012) Reference. Available at http://www. readyratios. com/reference (Accessed : 5 December 2012). Roman, F. J. (2011) A Case Study on Cost Estimation and Profitability Analysis at Continental Airlines, American Accounting Association. Sun dkvist, R. , Hedman, R. and Almstrom, P. (2012) â€Å"A model for linking shop floor improvements to manufacturing cost and profitability†, International How to cite Analysis of Financial Performance of Pz Cussons 2012, Essay examples

Oil and Gas Management Management

Question: Discuss both the attractions and disadvantages of BP as a possible take-over target, and identify the most probable bidders for BP. Give some examples of the problems that face these potential bidders in terms of political issues and managerial styles. Discuss whether a continuation of low oil prices, as seen in the first quarter of 2015, will accelerate any take-over bid, or would low prices be another barrier. Answer: Introduction: BP is an Anglo Persian oil company and was a member of 'Seven Sisters', entered into the market in 1970. In 2010, BP was hit by Gulf of Mexico oil that was a biggest oil spill in the history of U.S., and it caused financial damage to BP worth $42 billion. So BP is suffering from the financial crisis as well as reduced share prices that affect profits of many oil-field-service providers. So many companies like Exxon, PLC approached BP for a takeover as its share prices fall in the market, but they face many obstacles like political issues and managerial problems. Government of UK wants Oil company to remain an entity of British and wants to make it major global company in the region. BP has a capitalization of the market of more than $130 billion. The main concern is on the range of UK businesses and on its success that comes through healthy competition in the market. Except these political issues Exxon, PLC face many managerial problems as there is uncertainty regarding the penalty o n BP. When there is a drop in oil price, oil field services companies get squeezed as it is not economical to extract oil from the ground. Drilling contracts and oil exploration are likely to be canceled and to be put on hold. Due to the lower price of oil, insolvency filing in the gas and oil sector is expected to rise. So when oil prices fall due to the Gulf of Mexico, history points to mergers and acquisitions of the energy industry (Wilkinson, 2015). Attraction of BP BP takes over by Exxon have some advantage. The American business by Exxon is smaller than the international. And also BP is strongest in America. The advantage of taking over BP is that Exxon has low borrowed cost and has a high amount of cash. They also did a good job of absorbing Mobil. The next attraction of BP is that 20% share has the best oil company. In Russia, oil and gas have a huge market, and BP made a lot of money from the Russia. BP wants to stay in the market ( Shuen, et al.2014). Also, Exxon can solve any problem in the BP. They built the BP in the high range. BP doesnt spend so much capital as fast as possible that expected. BP maintains their position and maintains their rate in the international market. Disadvantage of BP BP has many disadvantages. If the penalty is created on BP, then they will face the burden of the liabilities. Also, the size of the company is too large than required. This is the wastage of money. For that place, they give interest. So many companies find bidding for BP is risky as US government charges penalty to BP. An continue drop in the share price of BP may bring huge liabilities to the company and bring uncertainty in future profits of competitors of BP ( Ingraffea, et al.2014).. They also not export their technology for that they did not earn money. The following disadvantages are- Mergers cost and acquisition It is very costly for high legal expenses. Also the cost of acquiring the new company also very high for the short time. This mergers and acquisition corporate decision is most complex, and it may create the problem (Andersen, 2015, December). The acquisition process is expensive for legal procedure, the cost of taking over the company, short time opportunity, etc. Consumer and shareholder drawback In some of the case not only acquisition problem but also have some problem in shareholders and consumer also. The consumers are not satisfied financially. These drawbacks are increased the consumer cost, decrease the performance in corporate, etc. share also has many disadvantages in the leadership section. They reduce the takeover activity and them also unable to produce power influence in the-the corporate section. The company also suffers from the lower cost of the share. The Lower price of the share creates disadvantage in the short term company (Thurner, and Proskuryakova, 2014). Settlement of wages Another problem is the fewer wages of the employee. For this case overpay the other employee and increase the wages. This is the unsettle the budget of the company (Saad, et al.2014). There are also having some disadvantages for taking over the company. That is fine, damage, and compensation. For this case the cost of BP is over. It also has political risk. Exxon can take over the company, but it has some political risk. Important bidders In the oil industry, the important bidders are Royal Dutch Shell. Also, the most company in UK are bidder of the BP. Also chevron corp. The largest U.S. company bidders of the BP. Some British company also co-operate with the BP. Mexico Oil Company also help to the BP. In 2010 BP was hit by Gulf of Mexico oil that was a biggest oil spill in history of U.S. and it caused a financial damage to BP worth $42 billion. Many economists speculated about the major challenge that that the company could face is a takeover by its foreign competitors like Shell, Exxon. Exxon Mobil Corporation was expected to approach BP in this regard (Watson, et al.2015, July). Political and Managerial Issues: In 2010, BP was hit by Gulf of Mexico oil that was a biggest oil spill in the history of U.S., and it caused financial damage to BP worth $42 billion. Many economists speculated about the major challenge that that the company could face a takeover by its foreign competitors likes Shell, Exxon. Exxon Mobil Corporation was expected to approach BP in this regard (Le and Chang, 2015). Exxon has the financial capacity to take over BP but whether Exxon intends to go further with the takeover is the main concern (Ritchie, Gill and Picou, 2011). They face many obstacle to the takeover of BP like political issues and managerial obstacles. If this competitor of BP wants to buy bulk amount shares from BP, then companies have to face some risks associated with liabilities and constraints from the government of UK. Government of UK wants Oil company to remain an entity of British and wants to make it major global company in the region. The earlier prime minister of UK has welcomed foreign direct investment at a large pace in this region. So it is very clear that government of UK would intervene if any foreign oil company like Exxon wants to target BP. This type of takeover may bring a threat to the financial and national security of any country so if Government of UK finds any risk, in this case, it can intervene and partially brings constraints in bidding. BP has a capitalization of the market of more than $130 billion, so it is an attractive takeover decision for Exxon, but it has reservation regarding obtaining of the UK based company. As a result, it would be expected to face a political obstacle in the initial phase. After the bid of 60 billion pounds by Pfizer Inc. for AstraZeneca plc government of UK took strict measures that caused public, business, and political concerns. The main concern is on the range of UK businesses and on its success that comes through healthy competition in the market. UK government is interested in having British companies succeeding and competing at both abroad and home. On the other hand, its competitor like Royal Dutch Shell, Exxon Mobil Corp, and PLC have faced trouble in gaining profits on US shale as these companies struggled with higher costs on expensive projects. BP faced many political problems in Russia and US. So many companies find acquisition for BP is risky as US government charges the penalty to BP. A continued drop in the share price of BP may bring huge liabilities to the company and bring uncertainty in future profits of competitors of BP (Le and Chang, 2015). Another cost associated with this takeover is the cost of cleaning the sea that creates a huge burden on the Exxon, PLC, etc. Except these political issues Exxon, PLC face many managerial problems as there is uncertainty regarding the penalty on BP. CEO of Exxon has explained that merging of these two companies is complicated because of the procedure applied to that company. Further, he explained that this may lead to the disaster that happened in 2010. Jeff Woodbury, head of investor relations, said that it is good to pursue with those acquisitions that are accretive to long run returns and have strategic values. So the advantages of this merger depend on the relationships and price of market shares and the position of the portfolio. It was predicted by some experts that Shell tried to make takeover bid for BP, but the argument was, BP was in weak financial position with the financial effect of the Deepwater Horizon disaster was not solved. As BP was banned in US market so it should be taken into consideration that acquisition also brings liabilities with it. So any company that wants to buy shares of BP must think about this profitability aspect. Besides this, Exxon faced many cultural challenges that affect the takeover decision. Effects of Lower oil prices: According to London Stock Exchange, a share price of BP declined to 365 pence and the company that is listed on the London Stock Exchange emphasized a warning declared by oil and gas UK. The issue is not to produce with the lower oil prices due to the high production costs (Platformlondon.org, 2015). When there is a drop in oil price, oil field services companies get squeezed as it is not economical to extract oil from the ground. Oil exploration companies could not meet the cost of production anymore, and there is no need to pay an oilfield service companies. As a result, the oil producing companies can feel the effects of the low oil prices. So production and exploration companies stop and slow drilling as they could not make money. There is huge pressure on oil services providers, and this leads to the variety of disputes. This reduced oil price has serious effects on the gas and oil companies all over the world. These problems are 1.Oil exploration and contracts: Drilling contracts and oil exploration are likely to be canceled and to be put on hold. Explorations companies reduce its investments as the number of gas and oil rigs in operation begin to drop. Offshore oil companies are more affected then the exploration companies of oil, indicating that when drilling stops and slows profits are mostly affected (Moshiri, 2015). 2.Restrictions on cargoes: It is better for many oil companies to divert its cargoes that are subject to constraints in supply agreements. 3. Insolvency: Due to the lower price of oil, insolvency filing in the gas and oil sector is expected to rise. Oil companies are demanding 20% fall in price and extension of payment periods that creates cash flow gaps for companies. Drilling firms and oil service providers may have ineffective balance sheets. Insolvency in oil sectors experiences a knock on the impact that leads to the financial loss for their contract parties (The Independent, 2015). 4.Employment issues: Ensuring insolvencies, squeezed profits and consolidations result in redundancies across the gas and oil industry and this cause unemployment problem in the economy (Kang, Penn and Zietz, 2013). These employment disputes create additional costs to employers. Shell plans to cut jobs and plans to shift in the North Sea to get the impact of reducing oil prices (Le and Chang, 2015). So when oil prices fall due to the Gulf of Mexico, history points to mergers and acquisitions of the energy industry. Price crashes in the 90s led the big firms to take over smaller companies and so investors and bankers are hoping the same thing after a decline in the oil price in recent days. The oil-field service-providers suffer most when the oil price falls as it reduces the oil company spending. Pascal Menges explained that there will be assets sales and an uptick in acquisitions if the price of oil falls continuously. This lower oil price may bring the distressed situation to small and medium size firms that force to unload property or sell out totally. Falling oil price not only harms producers but also harms consumers as it increases total expenditure cost of them (Susskind et al., 2015). Deep price fall in the late 90s led to an integration of oil producing firms and refining firms and a consolidation of the big giants. The recent decline in oil prices not only brings fewer profits but also it brings the fear that it could breach its debt covenants. So it inevitable to face loss in production when the oil price falls at a larger pace. As a result, BP faces some uncertainty and inconvenience due to a higher cost of production. Many competitors of BP try to take over BP, but they face many problems that restrict the takeover process. References Bugeja, M., da Silva Rosa, R., Izan, H. and Ngan, S. (2015). To scheme or bid? Choice of takeover method and impact on premium. Australian Journal of Management. Bugeja, M., da Silva Rosa, R., Izan, H. and Ngan, S. (2015). To scheme or bid? Choice of takeover method and impact on premium. Australian Journal of Management. Kang, W., Penn, D. and Zietz, J. (2013). The response of state employment to oil price volatility. Journal of Economics and Finance, 39(3), pp.478-500. Le, T. and Chang, Y. (2015). Effects of oil price shocks on the stock market performance: do nature of shocks and economies matter?. Energy Economics. Moshiri, S. (2015). Asymmetric effects of oil price shocks in oil-exporting countries: the role of institutions. OPEC Energy Review, 39(2), pp.222-246. Platformlondon.org, (2015). Share price of BP falling will Shell take over BP?. [online] Available at: https://platformlondon.org/2015/01/12/shareprice-of-bp-falling-will-shell-to-take-over-bp/ [Accessed 5 Aug. 2015]. Ritchie, L., Gill, D. and Picou, J. (2011). The BP Disaster as an Exxon Valdez Rerun. Contexts, 10(3), pp.30-35. Susskind, A., Bonn, M., Lawrence, B. and Furr, H. (2015). Regional Contrasts in Consumers' Attitudes and Behavior Following the BP Oil Spill. Cornell Hospitality Quarterly. Uwubanmwen, A. and Omorokunwa, O. (2015). Oil Price Volatility and Stock Price Volatility: Evidence from Nigeria. AJIS. Wilkinson, A. (2015). Deepwater Horizon oil spill linked to Gulf of Mexico dolphin deaths. Nature. Ingraffea, A. R., Wells, M. T., Santoro, R. L., and Shonkoff, S. B. (2014). Assessment and risk analysis of casing and cement impairment in oil and gas wells in Pennsylvania, 20002012. Proceedings of the National Academy of Sciences, 111(30), 10955-10960. Thurner, T., and Proskuryakova, L. N. (2014). Out of the coldthe rising importance of environmental management in the corporate governance of Russian oil and gas producers. Business Strategy and the Environment, 23(5), 318-332. Shuen, A., Feiler, P. F., and Teece, D. J. (2014). Dynamic capabilities in the upstream oil and gas sector: Managing next generation competition. Energy Strategy Reviews, 3, 5-13. Saad, S., Mohamed Udin, Z., and Hasnan, N. (2014). Dynamic Supply Chain Capabilities: A Case Study in Oil and Gas Industry. International Journal of Supply Chain Management, 3(2). Andersen, K. (2015, December). Spill Response on Ohio Horizontal Oil and Gas Well PadsPractical Guidance for Operators. In 2015 NGWA Groundwater Expo and Annual Meeting. Ngwa. Watson, A. A., Lopez-Plana, J. O., Garca, A., Ahumada, C., and Videla, C. (2015, July). Methods for the Development of Biodiversity Information Systems for Exploration Projects in the Oil and Gas Industry. 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