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Merger Activity
"In today's global business environment, companies have to grow to survive, and one of the best ways to grow is by merging with another company" (washingtonpost.com, 24.03.2008 )
A merger occurs when one firm assumes all assets and liabilities of another. The acquiring firm retains its identity, while the acquired firm ceases to exist. In the later half of the twentieth century it became vital for a company to grow if it were to remain in such a competitive marketplace. At this time, mergers and acquisitions became two of the more common methods to achieve the expansion and growth they required in order to survive. There are three main strategies of merger activity in which a firm can adopt, these are; horizontal, vertical and conglomerate. The chosen strategy is dependent upon factors such as the competitive relationship between the merging parties and the financial position at the desired time of growth or integration. Merging is usually performed in the hopes of realising an economic gain. For such a transaction to be justified, the two firms involved must be worth more together than they were apart.
Overall, the potential advantages of mergers include; achieving economies of scale, combining complementary resources, garnering tax advantages and eliminating inefficiencies. Other reasons for considering growth through merging include obtaining proprietary rights to products or services, increasing market power by purchasing competitors, shoring up weaknesses in key business areas, penetrating new geographic regions or providing managers with new opportunities for career growth and advancement.
Merger activity comes in waves of low and feverish activi ...