Merger Acquisition Finance Paper

Essay by shastabritt October 2007

download word file, 11 pages 5.0

IntroductionLegendary German car producer Mercedes-Benz a member of Daimler-Benz married with its US American colleague Chrysler Corp. These two want to become together the most profitable carmaker worldwide. After some ailments of the American brother, the company Daimler-Chrysler is on the way to make it. However, on the way to become the leader, the company must influence others. They must influence the global market as well as be influenced by the global market. They must also promote leadership by adding many new models to the market every single year, which as a result, lead to huge investments all over the world. How is it possible that two companies can have such an affect on the global market?Pros and Cons of Mergers and AcquisitionsCompanies choose to merge or acquire other companies for a number of reasons, namely growth. A merger is defined as a combination of two or more companies in which the resulting firm maintains the identity of the acquiring company, whereas an acquisition or consolidation is the combing of two or more companies to form a new entity (Block & Hirt, 2004).

Pros and cons of any merger must be carefully weighed to assure the best interest of both companies and to minimize the after-merger consequences. Mergers can occur for both financial and non-financial reasons as well as the motives of the selling stockholders. Financial motives include the portfolio effect that allows the acquiring company to achieve risk reduction while maintaining the company's rate of return. Companies that have holdings in diverse economic and political climates can enjoy some of the reduction in the risks that derive from foreign exchange translation, government politics, military takeover, and localized recessions (Block & Hirt, 2004). Greater access to financial markets that create stronger positioning to raise debt and equity capital is another...