ACQUISITION, MERGER & LIQUIDATION OF BUSINESS

ACQUISITION, MERGER & LIQUIDATION OF BUSINESS

MERGER

The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

 

 

 

 

 

 

 

 

 

ADVANTAGE OF MERGER

Mergers are undertaken to improve long-term shareholder value and overall company performance.
 

REDUCED COSTS

A merged company can reduce many of its expenses. Budgets for things like marketing might be trimmed, while the new, larger company enjoys greater purchasing power, which lowers the costs of raw materials and other necessities. More often than not, a merger results in staff layoffs as positions become redundant in the new single entity. Merged companies can also share office space and eliminate duplicate manufacturing facilities.
 

MARKET PENETRATION

By merging, the new company is theoretically provided with access to more customers. This is true if the individual companies had been demonstrably successful in separate markets, as opposed to roughly equally competing in the same one.
 

DIVERSIFICATION

Merged companies can offer a greater range of products and services. Because these may be complimentary, the merged company may be able to capture more consumers than they would as individual entities.
 

SKILLS AND KNOWLEDGE

The merged company can make use of the very best minds from both companies and make up for shortfalls in the individual companies’ skill-sets.
 

 

DISADVANTAGES OF MERGER
 

CULTURE CLASH

When two companies merge, it is more than just the coming together of names or brands — it is the joining of two groups of people who bring along their own specific corporate cultures. If two firms have very different cultures, conflicts can arise.
 

LEADERSHIP ISSUES

Cultural clashes can be exacerbated by discontent over leadership. Someone has to be in charge of the new company. It could be lead to corporate infighting, a talent drain as people leave the company, or other negative effects.
 

DISECONOMIES OF SCALE

When businesses merge, it is often to achieve economies of scale. Larger organizations are typically able to produce goods and services more efficiently and at a lower per-unit cost than smaller businesses because fixed costs are spread out over a larger number of units. This is not always the case, however. Sometimes when two firms merge, being larger will actually create diseconomies of scale, where per unit production costs increase.
 

CONSUMER PERCEPTIONS

When two companies merge, they need to consider how consumers view the two firms and whether or not they view them in a compatible way.
 

LAYOFFS

Merging two businesses is often a good method for reducing the labor force of the two organizations. For instance, a company may combine its two offices into one and reduce the number of staff performing the same duties. While this can provide cost savings for the company, it can also have a negative effect on employees. Employees may become fearful of losing their job and may lose their trust in the organization. This can decrease employee motivation and reduce productivity.
 

 

ACQUISITION

A corporate action in which a company buys most, if not all, of the target company’s ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company’s stock or a combination of both.

 

ADVANTAGES OF ACQUISITION
 

SPEED:

It provides ability to speedily acquire resources and competencies not held in house.Itallows entry into new products and new markets.Risks and costs of new product development will be decreases.
 

MARKET POWER:

It builds market presence.Market share will be increases &competition will be decreases.Excessivecompetition can be avoided by shut down of capacity.Diversification is aggrieved.Synergisticbenefits are gained.
 

OVERCOME ENTRY BARRIER:

It overcomes market entry barriers by acquiring an existing organization.
 

FINANCIAL GAIN:

Organization with low share value or low price earning ratio can be acquired to take short term gains through assets stripping.
 

RESOURCES AND COMPETENCIES:

Acquisition of resources and competencies not available in house can be a motive for merger and acquisition.
 

STAKEHOLDER EXPECTATIONS:

Stakeholder may expect growth through acquisitions.
 

 

DISADVANTAGE OF ACQUISITION
 

INTEGRATION PROBLEMS:

The activities of new and old organizations may be difficult to integrate.Cultural fit can be problematic.Employees may resist it.
 

HIGH COST:

The acquirer may pay high cost,especiallyin cases of hostile takeoverbids. Value may not be added for the acquirer.
 

FINANCIAL CONSEQUENCES:

The returns fromacquisitions may not be attractive.Executed cost saving may not materialize.
 

UNRELATED DIVERSIFICATION:

This may create problem of managing resources and competencies.
 

TOO MUCH FOCUS:

Too much managerial focus onacquisitions can be detrimental to internal development.