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Understanding Mergers and Acquisitions

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Mergers and acquisitions are very common in the business world. Mergers and acquisitions are processes in the corporate world that are carried out in order to add new assets in the business (Freeland, 2007). The words mergers and acquisitions although used together in business terms but are quite different from each other.




A complete combination of two separate corporations involving in a business is referred as business merger. A merger in the official sense is said to be worth when both businesses dissolve and double their assets and convert into a newly created third unit (Ramanujan, 2006). This requires a creation of a new corporation. Most of the mergers are friendly rather being a forced affair (Gaughan nd). The stock holders of the two companies come together and reap the benefits from the increased profits of the newly formed entity (Peterson 2006).  Acquisitions on the other hand are take-over. In this case one company actually buys another company. In take-over or acquisition generally a larger company buys a smaller one. There are two types of acquisitions. One form of acquisition is when the company purchases the shares from the share owners of the company which is undergoing the takeover. Another form is when the company buys only selected assets of a company.



There are can be various benefits for which mergers and acquisitions are carried out in the business world (wikipedia 2007[online]). One of the most common reasons for mergers and acquisitions or takeover is to increase profit. Via mergers and acquisitions, one can have duplicate departments which will assist in cost cutting. It is also helpful in making use of duplicate resources. Another benefit of mergers and acquisitions can be tax saving. for example a profit making company can takeover a company that is undergoing losses and thereby reduce its own tax liability. Mergers and acquisitions are also carried out by companies to get a stronger hold on the market. They can now capture a greater market and can create monopoly. This helps the companies to sell their niche at their terms and prices. According to a study (Lehman brothers 2000), when there are mergers and acquisitions between the companies of different countries the domestic currency of the company that has undergone the merger and acquisition gets stronger by one percent in relation to the company that does the take-over.



While every coin has two faces, there are certain disadvantages of mergers and acquisitions also (wikipedia 2007[online]). One of the major problems that come with mergers and acquisitions is the poor reaction of the shareholders. People issue is one of the most sensitive but often ignored issues in a mergers and acquisitions scenario (icfai [online]). The shareholders of the company which has been taken over often feel hostile. Moreover the mergers and acquisitions not only add to the resources of the company but also add the problems as well as the liabilities of the acquired or merged company.



Mergers and acquisitions under business consume an unbelievable amount of time and money (Ramanujan 2006). Whenever there are plans of mergers and acquisitions, they are kept confidential till the last minute. Only the lawyers, consultants, investment bankers other than the top officials of the company know about the deal. Although it is publicized later that a particular merger or an acquisition will benefit the shareholders of both the companies, it is the responsibility of the share holders to study the proposed deal for mergers and acquisitions before accepting the same.





Mergers and Acquisitions by Sarah Freeland


Mergers by Peterson


'Mergers, Acquisitions, and Corporate Restructuring' by Patrick A. Gaughan


'Mergers et al' by Ramanujan [online source] [online source]

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