Mergers And Acquisitions Essay Research Paper Mergers

Mergers And Acquisitions Essay, Research Paper

Mergers and Acquisitions

Since the 1980’s, and even more now in the late nineties, it has become a growing trend for companies, both large and small, domestic and foreign, to form strategic alliances within their particular industries. There are many specific goals that companies may be looking to achieve by dong this, but the main underlying reason is to guarantee the long-term sustained achievement of “fast profitable growth” for their business. They have to keep up with a rapidly increasing diversified global market and increased competition. Nowadays, with the struggle for competitive advantage becoming stronger and stronger, it is almost essential to form alliances. Diversifying and expanding techniques such as mergers and acquisitions are very popular methods for forming these alliances. Basically stated, a merger is a joining of forces and acquisition is a purchase of a company, whether it is welcome or hostile. The two terms are often used interchangeably. Much research and planning is required in the early stages of these processes, which starts with an acquisition strategy used in trying to find a suitable company to merge with. Advantages and disadvantages of the merger must be thought out, as well as many other important aspects, such as risk factors and new organizational structures that must be considered and closely monitored throughout all of the stages of the merger or acquisition. It is of these competitive strategies, mergers and acquisitions, as well as a recent case study following the conclusion, that will be the focus of my paper.

Before going further into the merger and acquisition process, a more complete explanation is necessary. A merger is the combining of two or more companies into a single corporation. This is achieved when one company or business purchases the property or some other form of assets from another company. The result of this action is the formation of one corporate structure. This new corporate structure retains its original identity. An acquisition is a little different from a merger in that it involves many problems being “dissolved”, and an entirely new company being formed.

There are different ways for a merger or acquisition to take place. One obvious method involves the purchasing business making an absolute payment in cash or in company stock. Other arrangements may be made such as the exchange of bonds. After the purchase has been made, the purchaser acquires the assets and liabilities of the other firm.

There are two main types of mergers; horizontal and vertical. A horizontal merger or acquisition combines firms that competed with one another at the same stage of production into a single new firm. These mergers usually involve basic commodities. A vertical merger, which is more common in producer-goods industries, takes the entire production process, from raw materials to the end finished product, and combines them together under single ownership.

Throughout history, certain mergers and acquisitions have influenced modern international finance. In the late 1800’s, merger and acquisition techniques were being abused and monopolies were starting to emerge. This led to the creation of The Sherman Antitrust Act, which made monopolies illegal. More recently, large mergers and the birth of new markets around the globe have affected international finance. When two major corporations merge they form a company with a very large amount of economical and political power. This has led to issues that deal with ethics and social responsibility (Hirsch 15).

Now we contemplate the first important question: Why merge or acquire. As stated earlier, the overall goal is to ensure future stability and growth in the market. But more specifically, each company has individual goals that it hopes to achieve. Many times mergers are completed to save a failing business. Others reasons for mergers include reduced competition and/or product diversification. These goals are closely related to the possible advantages of mergers and acquisitions, and of course, in the case of all risks, there are possible disadvantages as well.

Many of the advantages have to do with forming unique research and development skills. One major advantage is that a merger would give a company the opportunity to expand by establishing their presence in a host country. This invites the company to compete in other markets. Another possible goal or advantage is being able to adopt technology from the other business rather than spending the time and money to develop it themselves. In the long run, this would cut costs and improve productivity. Economies of scale and scope can be gained with a larger base and with this increased size come many competitive advantages (Eiteman 482). A successful merger or acquisition may very well allow a business to reduce its foreign exchange operating exposure by servicing a market with local manufacturing rather than through imports (Eiteman 483). Some businesses merge to help alleviate some or all of their debts (debts that will be taken over by the merging company) in hopes of getting the chance to start over.

Later in my report I will be discussing a cross-cultural merger, therefore, the disadvantages I am about to discuss relate to cross-border mergers. One major problem that may be incurred is cultural differences between the