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Mergers and Acquisitions
Mergers and acquisitions influence business. This influence is realized through sensible and dubious decision-making. Moreover, benefits and costs of cash and stock transactions exist when business mergers and acquisitions take place. Furthermore, evidence of financial risk when merging or acquiring an organization in another country exists; however, these risks can be mitigated.
To make sensible decisions, business must understand how mergers are categorized. The categories are horizontal, vertical, and conglomerate. Horizontal mergers are made up "two similar businesses formed as one" (Brealey, Myers, & Marcus, 2004, p. 591). The vertical merger is "companies at different stages of production" and conglomerate mergers require "companies in unrelated business" (p. 591). The appearance of a merger or acquisition may make sense, but more often than not, management falls short in handling "the complex task of integrating two firms with different production processes, pay structures, and accounting methods" (p. 592). In addition, sensible reasoning takes advantage of unused taxed shelters, more debt capacity, and management control.
Challenges exist that add uncertainty to mergers and acquisitions. For investors, money is easier to diversify instead of mergers. In addition, some doubt cast when firms offer a low price-earning ratio per share that could result in a higher share price instead of increased earnings. Investors expect rapid growth, which is why a company enjoys a high price-earning ratio. A game called "the bootstrap game consists in buying undervalued companies and making the market re-rate them to create value for the shareholders of the acquirer" ...