Mergers & Acquisitions Essay Example | Topics and Well Written Essays - 2000 words - 1

Mergers & Acquisitions - Essay ExampleMerger usually takes place when two companies join in concert as iodin company and both companies cease to exist as separate entities and a red-hot entity is formed as a turn out. The example of DaimlerChrysler is most suitable here because this new business stir was formed by the fusion of Daimler-Benz and Chrysler. It is as well believed that mergers take place among or between equals. Practically however, the two or more companies atomic number 18 not always on equal grounds. Some times the companies undergoing a deal call the association as merger while in actuality it is an acquisition. The deal is a merger or an acquisition also depends on the circumstances. Friendly or hostile nature of the deal also becomes important. Irrespective of its nature the business deals of this kind greatly affect the board of directors, employees and shareholders.Apart from the distinction of mergers there also exist unlike forms of mergers. For exampl e horizontal merger is one when companies sharing sharethe same intersection lines and markets join hands. When supplier and company merge it is termed vertical merger. Conglomeration happens when companies having different businesses come together.There re different reason given for the mergers and acquisition among companies but three hypotheses are very well cognise practically as well as theoretically. The synergy hypothesis, hubris hypothesis and managerialism hypothesis have a bun in the oven been studied and different observations made regarding them. The synergy hypothesis proposes that acquisitions take place when the value of the combined firm is greater than the make sense of the values of the individual firms. Managers are postulated to be motivated by shareholders interests to create economic value, and to have the ability to judge accurately the value potential of the combined firm. Other explanations do not assume value-maximizing behavior on the part of managers. The managerialism hypothesis suggests that managers embark on acquisitions to maximize their own utility at the expense of the shareholders of the firm. The hubris hypothesis suggests that bidding firm managers make mistakes in evaluating target firms, but undertake acquisitions presuming that their valuations are correct (Pettit, Seth & Song, 2000).Synergy HypothesisTwo companies joined together may create the do of three not two is the reason why most companies choose the path of mergers & acquisitions. The synergy is considered one of the main reasons. By mergers and acquisitions the companies seek to create more value for the shareholders. Synergy gets many benefits for the engaging companies. close to important benefits come in the form of revenue augmentation and cost savings. Due to staff reductions the company gets to yet a lot. Especially, when one of the two CEO leaves the company with other employees they also forgo their expensive payment packages causing huge reduc tion in costs. Economies of scales can be achieved by two companies together than separately. consanguinity with suppliers also improves when stronger and larger groups negotiate. When placing orders for the company management can have a stronger position and as result could get better bargain. Some companies achieve an edge in a particular area by acquiring or merging another company. For example a small company having an edge in IT or any other scope of