Evaluate the shareholder wealth outcome explained by your classmate
and describe the technique used to create that outcome. Explain whether
or not the technique used was the most beneficial for the situation.
Recommend at least one additional technique that might have created a
better outcome for shareholder wealth. Explain one major consequence of
your recommended technique and how you would mitigate any risk involved
with using that technique. Minimum 200 words each.

Classmate 1:

T
Mobile and Sprint’s merger in 2020 was decided to stay competitive with
other cellphone service giants, AT&T and Verizon. Through the
merger, all assets and liabilities were combined, affecting the
financial calculations in the process. For example, operating income
increased due to the merger as T-Mobile gained all of Sprints employees,
however, it also decreased the total revenue as T-Mobile also acquired
Sprint’s liabilities. By using the most recent 10-K annual report, we
can determine changes in the various financial calculations analysts use
to determine business strength.

The first calculation is the net
profit margin. The net profit margin is the difference of revenue and
cost, also known as net income, all divided by revenue. In 2021, revenue
was $80,118 while 2020 was $68,397, in millions, respectively. The net
income in 2021 was $3,024 and 2020 was $3,064. Net profit margin for
2021 was $3,024/$80,118 = 3.77% while 2020 was $3,064/$68,397 = 4.48%.
Diluted earnings per share for 2021, 2020, and 2019 were 2.41, 2.65, and
4.02, respectively (T-Mobile 10-K, pgs. 55-56).

Return on Assets
is calculated by dividing assets by net income. In 2021, total assets
were $206,563 while in 2020, they were $200,162, in millions,
respectively. 2021 return on assets was $3,024/$206,563 = 1.46%, while
2020 return on assets was $3,064/$200,162 = 1.53% (T-Mobile 10-K, pgs.
55-56).

Return on equity is calculated by dividing net income by
shareholder’s equity. In 2021, total shareholder’s equity was $69,102
while 2020 was $65,344. In 2021, return on equity was $3,024/$69,102 =
4.38% while 2020 was $3,064/$65,344 = 4.69% (T-Mobile 10-K, pgs. 55-56).

From the data above, T Mobile had a 4.02 earnings per share
before the dilution of the Sprint merger, causing the earnings per share
to drop to 2.65 and eventually 2.41. The pandemic did not help with the
company’s finances either, as the net profit margin dropped from 4.48%
to 3.77% from 2020 to 2021. Although revenue increased from 2020 to
2021, return on assets and equity use the net income in the calculation,
and due to increased operating expenses, the overall expenses dropped
the net income to 2020 levels. With the company continuing to increase
in assets, liabilities, and equity, while the net income stays the same,
both return on assets and equity dropped, reducing shareholder wealth.

Classmate 2:

As
I look at the strategic acquisition of Slack by Salesforce, I realize
that financial results told a very different story outside of what the
public heard about through company marketing efforts. Slack, while they
had a program with a strong product and great people, were suffering
financially ever year. For FY22, Salesforce posted net income of 1,444
million USD with the integration of Slack into their operations in July
of 2021 (Salesforce, 2022). With pro-forma adjusted earnings for January
31, 2021, through January 31, 2022 with Slack being fully integrated,
Salesforce would have posted a net income of 1,127 million USD
(Salesforce, 2022). For the past two years, Slack posted significant
losses which shown through this acquisition as Salesforce had reduced
net income. To better understand the financial position of Salesforce
and Slack we will look at the net profit margin, EPS, ROE, and ROA data
below.

(Slack, 2021 -a; Slack, 2020 -b; Salesforce, 2022; Yahoo Finance, n.d.)

As
we look at this financial data, it is easy to see that Salesforce was
in a strong financial position with solid EPS and return on equity in a
year with a ton of volatility for almost every business. Slack was in a
horrible financial spot with consistent losses every year with no
earnings per share. As a result of the strategic acquisition,
shareholder wealth was greatly increased for stockholders in Slack while
Salesforce shareholders felt a decline in value for their stocks.
Overall, the strategy with this acquisition was to remain competitive
with Microsoft and integrate an innovate piece of communication software
into the Salesforce ecosystem. The competitive edge of Salesforce with
the acquisition of Slack will pay off over the long run. The immediate
financial outcomes are bleak.