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.
MERGERS AND ACQUISITIONS
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.
BENEFITS OF MERGERS AND ACQUISITIONS
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.
SHORTCOMINGS OF MERGERS AND ACQUISITIONS
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.
References:
Mergers and Acquisitions by Sarah Freeland
Mergers by Peterson
'Mergers, Acquisitions, and Corporate
Restructuring' by Patrick A. Gaughan
'Mergers et al' by Ramanujan
www.wikipedia.com [online source]
icmr.icfai.org/casestudies [online
source]
