Mergers and Acquisitions.

Essay by rakeshcaltonA-, January 2006

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Mergers or acquisitions have become a norm for companies aiming at growth. Various companies resort to mergers and acquisition, to form strategic alliances. In majority of cases the underlying reason for these is to guarantee long-term sustained achievement of "fast profitable growth" for the business. In today's competitive world it is important for various companies to keep up with a rapidly increasing diversified global market and increased competition. In order to gain competitive advantage it is essential to form alliances.

According to Megginson and Smart "Mergers and acquisitions are major corporate finance events that, when executed efficiently and with the proper motives, can help managers realise their ultimate goal of maximizing shareholder wealth."

A merger is the combining of two or more companies into a single corporation. This is achieved when one company or business purchases the property or some other form of assets from another company. The result of this action is the formation of one corporate structure.

This new corporate structure retains its original identity. An acquisition is a little different from a merger in that it involves many problems being "dissolved", and an entirely new company being formed.

Reasons For Mergers:

There are many reasons for mergers and acquisitions such as, growth of the company, achieving the economies of scale, for power or better management, stability and to increase market share and eliminate competition. At the core of mergers and acquisition lies the sole objective of maximization of shareholder wealth regardless of the scale of the business. This maximization of the wealth must be both in day-to-day running of the business as well as in the long-term through their tactical decisions. A well executed acquisition or merger will increase the profits earned by increased sales income and by reducing costs. It may also place the...