Mergers and acquisitions take place for various different reasons including increasing shareholders wealth, reduction in costs with an increase in earnings per share, increase in liquidity, restructure the organization, and penetrate international space. Specifically, mergers and acquisition activity has seen an increase in U.S. firms and international companies transacting mergers to gain access into new markets (Block & Hirt, 2005). One example of an international merger is Sony Japan and MGM in 2004 which allowed the companies to combine their home video business. This paper will highlight the pros and cons of merging, factors used in determining the price paid and realized benefits, the effect the merger had on the stock prices, the capital structure, and four international financial management issues that must be addressed and ways for the companies to protect themselves.
Mergers and acquisitions are processes of acquiring new assets by buying and taking over other businesses or by merging with them.
Like any type of business activity, there are pros and cons for both mergers and acquisitions. Some of the pros include: the potential to add value to a company's bottom line, the potential to increase a market share, and the potential to add assets to a company's holdings. While M&A's have several pros, they also have several cons. Some of the cons include bad public reaction to hostile takeovers, resistance from the targeted company and the acquisition of additional liabilities and problems (Block & Hirt, 2005).
There are two main types of acquisitions, a share purchase and an asset purchase. In a share purchase acquisition a company will buy shares of a target company from its shareholders. By doing this it gains equity in the target company merging the two companies together. The second type of acquisition is an asset purchase. In an asset purchase the...