Effect of mergers and acquisitions on performance of firms- case study of Lenovo and IBM PC

Only available on StudyMode
  • Download(s): 323
  • Published: July 17, 2014
Read full document
Text Preview

Dissertation
Effect of mergers and acquisitions on performance of firms- case study of Lenovo and IBM PC

Introduction
Background of the Study
As pointed out by Agrawal, Jaffe and Mandelker (1992), decisions on mergers and acquisitions are highly critical in the success of companies, as well as their managers. Numerous corporations always find that one of the best means of getting ahead is expanding the ownership boundaries via the mergers, as well as acquisitions. Mergers and acquisitions result into the creation of synergies, and besides, it enables the merging firms to gain various economies of scale besides expanding their operations and cutting on various costs. Investors might always expect the mergers to provide highly enhanced power for the market. A number of the advocates of the mergers are of the argument that mergers have the capacity to cut on their costs besides boosting the revenues that are gained by firms (Ismail, Abdou and Annis, 2010). According to Beitel and Schiereck (2001), mergers and acquisitions are corporate finance aspects, management aspects, as well as strategic management aspects that entails selling, buying, dividing, as well as combining diverse firms, as well as similar firms, which have the capacity to help an organization to grow rapidly within its location or sector, or within a newer field or within a newer location, without the creation of a subsidiary, or without the use of a joint venture. Generally, mergers and acquisitions activities may be referred to as a kind of restructuring given that they always result into the reorganization of various entities. They are mainly aimed at the provision of growth, as well as positive value (Tse and Soufani, 2001). As pointed out by Beitel, Schiereck and Wahrengoug (2002), a merger refers to the legal consolidation of two firms into a single entity. On the other hand, acquisition always takes place when a single firm takes over a different firm and entirely establishes and develops itself like the newer owner. As pointed out by Brailsford, Faff and Oliver (1997), there are numerous good reasons why various firms are nowadays engage in mergers and acquisitions. Through it, firms have the capacity to obtain quality staff, as well as additional knowledge and skills of the sector or industry in which a firm is. A business that has a good management, as well as a good process system will help the other to enhance their own. On the same note, accessing funds, as well as the assets that are valuable for new development is very easy through mergers and acquisitions. Firms always enjoy enhanced production, as well as highly enhanced distribution facilities through mergers and acquisitions (King, Dalton, Daily and Covin, 2004; Tuch and O’Sullivan, 2007). According to Hayward and Hambrick, (1997) there are different other benefits that are generated by mergers and acquisition. For instance, it is recommended when a given firm needs to get into a new market, when a given firm needs to introduce fresh products via research, as well as development, when a firm needs to attain various administrative benefits, when a firm needs to enhance its share of the market, when a firm needs to lower cost its production or operation costs, when a firm needs to enhance its competitiveness and when a firm needs to enhance on their profitability (Huizinga, Nelissen and Vander, 2001). According to Malhotra and Zhu (2006), an enhanced share of the market is one of the biggest benefits that are gained by various firms from the mergers, as well as acquisitions. When a financially strong firm acquires one that is comparatively distressed, the resultant firm has the capacity to experience a significant increase in the share of the market. The new firm that is formed is always highly cost-efficient. At the same time, it will be highly competitive in comparison to the parent companies that are comparatively weak financially (Johnston and...
tracking img