Mergers

3 Key excerpts on "Mergers"

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  Mergers and Acquisitions Security

  Corporate Restructuring and Security Management

  • Edward Halibozek, Gerald L. Kovacich(Authors)
  • 2005(Publication Date)
  • Butterworth-Heinemann

    (Publisher)

  One of the major problems of expanding into new markets is the lack of knowledge about how these markets operate. Commercial markets are very different from government markets. Perhaps the best approach a com-pany can take when seeking to expand into new and unfamiliar markets is to develop an alliance with a company already well established in the desired market. The market expertise offered by a partner or an alliance, coupled with new or advanced technologies that have great potential for application within that market, may create the synergy needed to benefit both companies. WHAT COMPANIES EXPECT TO ACHIEVE WITH Mergers AND ACQUISITIONS In a strategic merger or acquisition, a company attempts to position or change itself to be more competitive in its future marketplace. Purchasing another company or companies in related businesses, where the chance of achieving economic synergies is high, is usually the chosen path. The pri-mary objective of strategic Mergers and acquisitions is to achieve a com-petitive advantage for the future by aligning a company in such a way so that its strategic capabilities are consistent with the future anticipated per-formances and expectations of the marketplace. In other words, a company anticipates what the future marketplace will be like and then shapes itself to operate effectively and efficiently within that marketplace. Mergers and acquisitions are methods by which companies can pur-sue business strategies designed to enhance their future capabilities and grow revenue and/or market share. They are a strategic option when a com-pany can’t develop new growth, revenue, or capabilities from within, or the cost of doing so is not practical. Mergers and acquisitions have the potential of adding value to companies, in many ways enabling them to accomplish strategic moves such as the following: ● Attain greater market-share and/or reach new markets.

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  Advanced Accounting

  • Debra C. Jeter, Paul K. Chaney(Authors)
  • 2022(Publication Date)
  • Wiley

    (Publisher)

  Operating synergies may take a variety of forms. Whether the merger is vertical (a merger between a supplier and a customer) or horizontal (a merger between competitors), combination with an existing company provides management of the acquiring company with an established operating unit with its own experienced personnel, regular suppliers, productive facilities, and distribution channels. In the case of vertical Mergers, synergies may result from the elimination of certain costs related to negotiation, bargaining, and coordination between the parties. In the case of a horizontal merger, potential synergies include the combination of sales forces, facilities, outlets, and so on, and the elimination of unnecessary duplica- tion in costs. When a private company is acquired, a plus may be the potential to eliminate not only duplication in costs but also unnecessary costs. Management of the acquiring company can draw upon the operating history and the related historical database of the acquired company for planning pur- poses. A history of profitable operations by the acquired company may, of course, greatly reduce the risk involved in the new undertaking. A careful examination of the acquired company’s expenses may reveal both expected and unexpected costs that can be eliminated. On the more negative (or cautious) side, be aware that the term “synergies” is sometimes used loosely. If there are truly expenses that can be eliminated, services that can be combined, and excess capacity that can be reduced, the merger is more likely to prove successful than if it is based on growth and “so-called synergies,” suggests Michael Jensen, a professor of finance at the Harvard Business School. 2. Combination may enable a company to compete more effectively in the interna- tional marketplace. For example, an acquiring firm may diversify its operations rather rapidly by entering new markets; alternatively, it may need to ensure its sources of supply or market outlets.

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  Contemporary Industrial Organization

  A Quantitative Approach

  • Lynne Pepall, Dan Richards, George Norman(Authors)
  • 2011(Publication Date)
  • Wiley

    (Publisher)

  In any event, as discussed above in the context of the Salinger (1990) model, even when integrated firms choose to foreclose independent rivals, it is still possible that the merger puts downward pressure on the final price to consumers. These considerations suggest why many economists thought the ruling a mistake. 11 12.5 A NOTE ON CONGLOMERATE Mergers Before considering a recent empirical study of vertical integration, we mention briefly a third type of merger: the conglomerate. Such Mergers bring under common control firms whose products are neither direct substitutes nor complements. The result is a set of firms producing a diversified range of products with little or nothing in common. Because these products are neither substitutes nor complements, the competitive impact of such Mergers is limited. For much the same reason, however, it is difficult to provide an economic rationale for conglomerate Mergers at all. Scope economies and savings on transaction costs are two possible advantages that may accrue to conglomerate firms. However, the data on conglomerates do not appear to support the idea that these firms exhibit significant scope economies. Nathanson and Cassano (1982), for example, found that there are at least as many conglomerate firms that produce goods with little in common as there are firms that have relatively low product and market diversity. By transaction costs we mean the costs that are incurred by firms when they use external markets in order to procure goods and services. 12 These include, for example, the costs of searching for the desired inputs, negotiating supply contracts, monitoring and enforcing these contracts, and the risk associated with unforeseen changes in supply conditions. However, the argument that economies based on transaction costs underlie conglomerate Mergers is also suspect. Part of the reason is that, again, such economies would most likely be present if there were some commonality in the production lines.

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