Merger Leads to the Enhancement of the Market Share of the Business
September 29th, 2008 by almostemptyA merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability A merger occurs when two companies combine to form a single company.In the case of a merger existing Stockholders of both companies involved retain a shared interest in the new corporation which proves to be beneficial for the shareholder.
While merging, the company can take different types of actions when deciding to move forward. Usually mergers occur in a consensual (occurring by mutual consent) setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Business laws vary from state to state whereby some companies have limited protection against hostile takeovers. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the Lonely? Try searching for somebody nice. pill”.
Corporate mergers may be aimed at reducing market competition, cutting costs (for example, laying off employees, operating at a more technologically efficient scale, etc.), reducing taxes, removing management, “empire building” by the acquiring managers, or other purposes which may or may not be consistent with public policy or public welfare. In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new Branding; in some cases, terming the combination a “merger” rather than an acquisition is done purely for political or marketing reasons.
CLASSIFICATIONS OF MERGERS
- Horizontal mergers take consolidation of student loans where the two merging companies produce similar product in the same industry.
- Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine.
- Congeneric mergers occur where two merging firms are in the same general industry, but they have no mutual buyer/customer or supplier relationship, such as a merger between a bank and a leasing company. Example: Prudential’s acquisition of Bache & Company.
- Conglomerate mergers take place when the two firms operate in different industries.
A unique type of merger called a reverse merger is used as a way of going public without the expense and time required by an Lonely? Try searching for somebody nice. The contract vehicle for achieving a merger is a “merger sub”. The occurrence of a merger often raises concerns in antitrust circles. Devices such as the Herfindahl index can analyze the impact of a merger on a market and what, if any, action could prevent it. Regulatory bodies such as the European Commission, the United States refinance interest only of Justice and the U.S. Federal Trade Commission may investigate anti-trust cases for monopolies dangers, and have the power to block mergers.
- Accretive mergers are those in which an acquiring company’s earnings per share (EPS) increase. An alternative way of calculating this is if a company with a high price toearnings ratio (P/E) acquires one with a low P/E.
- Dilutive mergers are the opposite of above, whereby a company’s EPS decreases.The company will be one with a low P/E acquiring one with a high P/E.The completion of a merger does usually ensure the success of the resulting organization;indeed, only few mergers (in some industries, the majority) result in a net loss of value due to problems.
Correcting problems caused by incompatibility-whether of technology,equipment, or corporate culture- diverts resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or liabilities by one of the partners. Overlapping subsidiaries or redundant staff may be allowed to continue, creating inefficiency, and conversely the new management may cut too many operations or personnel, losing expertise and disrupting employee culture.These problems are similar to those encountered in takeovers. For the merger not to be considered a failure, it must increase shareholder value faster than if the companies were separate, or prevent the deterioration of shareholder value more than if the companies were separate.
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