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Mergers and Acquisition

Introduction

The CFA institute (CFA Institute , 2010, pg. 336 - 440) refers to mergers and acquisitions as two businesses or companies combining together in one way or the other. There are many objectives behind mergers and acquisitions. In order to achieve diversity, organizations may seek to mergers and acquisitions or to achieve growth in the market and increase their market share. Mergers and acquisitions take place all over the world. Once a company sees potential profit opportunities, by acquiring another company, it goes for the merger and acquisition process. Mergers and acquisitions have been criticized, as well as seen as a positive thing in developed economies. There are many benefits which a merger and acquisition can bring on the whole. One of the most widely accepted and witnessed benefit of mergers and acquisition is the economies of scale. As two companies merge, the expertise of both the companies merges as well, resulting in a positive outcome and efficiencies. This combined expertise, work towards more innovative techniques, and works efficiently in order to increase revenues and minimize the overall cost of the business. There are also many other benefits of mergers and acquisitions, some which are increased market share of the new organization, more expertise, economies of scope, economies of scale and many others. Apart from the benefits of mergers and acquisitions, there are many disadvantages of mergers and acquisitions as well.

Some of the common and widely known disadvantages are, cultural clashes of the two organizations being merged, merger may not result in economies of scale and economies of scope. Instead of merged companies, expected to produce economies of scale, may result in negative economies of scale. Other disadvantages include loss of jobs of many employees. There are different approaches and methods of mergers and acquisitions, some of which we will discuss in detail. However, world over mergers and acquisitions are witnessed in different forms, some of which can be categorized as, statutory merger, subsidiary merger, and consolidation. In a statutory merger, the target company seizes to exist in its original form, in other words, it dies away as a separate legal entity, as the acquirer acquires and merges all the assets of the target company. Usually in statutory mergers, target companies are much smaller. In a subsidiary merger, the target company becomes a subsidiary of the acquirer. These types of mergers are achieved when a target company has a well known brand. In consolidation, both the acquirer and the target company seizes to exist, a new company is formed.

Discussion

There are many mergers and acquisitions taken place in the real world. One of the most notable merger and acquisition which took place recently is that of the Hewlett Packard Company and Compaq computers. This merger has been criticized since the announcement of acquisition of Compaq computers by Hewlett Packard Company by many. At the same time, many showed support for this merger. In the year 2001, (Hewlett Packard Company) announced its agreement to merge ...