Mergers And Acquisitions
Mergers and Acquisitions
Buried deep in the subconscious is the vague recollection of a cartoon seen in childhood. The cartoon depicted a large fish on the verge of swallowing a smaller fish that was on the verge of swallowing a smaller fish that was on the verge of swallowing a smaller fish. And on it went. This deeply rooted image sometimes briefly surfaces during mergers and acquisition. In truth, this example of the living food chain is not always the reality of a business transaction. The merger can either be the result of two companies joining to become one or when one organization is purchased by another. An acquisition, on the other hand, is by definition a purchase (Investopedia.com, 2006). For the purpose of this dissertation while acknowledging the difference, the term merger will be used to encompass both criteria. There are many reasons for companies to be involved in a merger or acquisition and there are a number of consequences of these transactions. How a company is affected and some of these reasons will be looked a briefly.
What reasons are there for companies to merge? Some of the reasons are strategic. Mergers can be beneficial for developing new visions and goals, and for providing the capacity to move into new markets and products by adding different skills. Some reasons are economic. A merger between two companies can result in the ability to increase the product line, can allow for costs cuts due to the increased volume and a consolidation of overhead costs. In addition, the increased capacity allows for increased market share and more negotiating power. The merger can also benefit the customer base as well as improving technology capabilities. While these seem like salient reasons, some of the underlying reasons may not be as relevant or trustworthy. Using “economies of scale,” while having significant impact in qualified situations, are a catch all unless it can be proven that the merger will eliminate duplication of...
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