Introduction to Business Mergers

Topics: GlaxoSmithKline, Mergers and acquisitions, Pharmaceutical industry Pages: 15 (4724 words) Published: April 11, 2006

Director's Enquiry

A merger is the combination of two or more entities into one through a purchase or a pooling of interest. The process by which a corporation obtains control over a complete strategic business unit (SBU) or competence may be described as being by acquisition, merger or take-over. A merger is the coming together of 2 organisations, often of a broadly similar size. An acquisition is the purchase of one company by another, with the acquirer usually considerably larger than the company acquired. A take-over on the other hand is a hostile acquisition this takeover process where the directors of the target company do not wish their firm to be acquired. In the past two decades, merges and acquisitions have been the examples of the most dramatic corporate growth and expansion. In recent years, there has been an expansion in the number of mergers between large corporations these have been caused by a number of reasons, which include globalisation, deregulation, and increased competition in the markets. Through a merger, two organisations come together to share resources and achieve a common goal for the future. Through the process of the merger, two economic units are combined to form a much larger and stronger entity.

The increased competition, which results from globalisation, is one reason for the increased globalisation and consolidation. Given the increasingly international environment in which organizations compete, a multinational merger instantly opens a company up to a worldwide market, cross border knowledge transfer channels, international skill, and a wider consumer market. Firms feel to keep up with the industry and remain a key competitor they have to follow the trend. The increased competition is one reason, which has led to an increase in the merger activity (Fine, 2002). Through mergers, a company can increase its investment in skills and expertise by channelling in the resources of two companies. Mergers lead to increased operational efficiencies and organisations can increase their capabilities by combining their research facilities. Also through creating a merger a company can increase shareholder wealth, when a firm enters into a merger it increases its assets, knowledge, expertise and skills. A company can increase its profitability by increasing its industry concentration and generate oligopolistic profits. (Lundan et al, 2001) some organisations increase their shareholder wealth through merges by increasing the scope of their activities and geographical presence.

There are two types of growth for a firm these include vertical diversification and horizontal diversification. Vertical diversification is enlarging the organisation's capabilities by undertaking operations in a different competitive arena in the same value chain the company is operating. Horizontal diversification is one where operations in a different competitive arena in the same value chain but not in the same industry the company are operating. Horizontal diversification, when a firm moves into providing offers that complement its current offers. Through such an activity, the revenues of a company can be increased through consolidation of two firm's assets. Through vertical integration, a company can improve its operations by controlling elements in its value chain (Grants, 2003).

1.0 Introduction.

This project will focus on GlaxoSmithKline plc one of the worlds largest pharmaceutical companies. The report analyses the reasons behind multinational mergers with particular reference to GSK plc. This research examines the theoretical reasons for the pharmaceutical merger can be realised in practical situations such as that of GSK plc. This report then goes one step further to assess the effect that such a merger has on a cross section of stakeholders such as the shareholders, governments (tax wise), community and on the business itself, by looking at and comparing the position of GSK immediately...

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