BUS MOD 4 DISCUSSION WK 1. Merger Rumors and “Junk Bonds”

135 PER POST/RESPOND TO BOTH
PART 1.
One of the hottest topics in the business press are rumors of major corporations merging together. For example, Whole Foods was subject to rumors about several potential suitors including supermarket giants such as Kroger, Albertson’s, and Walmart. But the world was somewhat surprised when a merger deal with Amazon was announced, as this seems like a bit of an “odd couple”.
Go to Google news or other news search engines and see what the latest merger rumors are. Pick one of the merger rumors that seems the most unusual to you – one that makes you wonder why these two companies think they are a good match for each other. Share the link to the article with your classmates, and discuss the following issues:
Is this merger horizontal? Vertical? Conglomerate (unrelated diversification)?
Why do you think these companies would or would not make a good match?
Do you think this merger will actually go through? Or won’t get beyond the gossip stage?
PART 2.
If you have poor credit due to being delinquent on credit card debt or other issues, chances are the bank is going to charge you a higher interest rate on a personal loan, or it might not give you a loan at all. Corporations face the same problems. If a company takes on too much debt or is otherwise considered to be a credit risk, then it also gets low credit ratings. In this case, if it wants to take on more debt it needs to issue what is known as “junk bonds,” or as corporations prefer to call them, “high-yield bonds.”
Whatever you call these types of bonds, their key feature is that they pay higher interest than bonds from a corporation that has a high credit rating. If you have a 401(k) or other retirement investment fund, chances are you have the option to make a portion of your investment in these higher risk/higher return bonds.
Do some research on junk bonds. What kind of controversies do you see with them? Do you think they are a solid investment for your retirement, perhaps no riskier than most investments? Or do they deserve the derogatory term “junk”? Share the links to the articles you find with your classmates, and discuss your opinions as to whether you think the higher interest rate justifies the increased risk.