Mergers and Acquisition

Topics: Mergers and acquisitions, Corporate finance Pages: 3 (754 words) Published: December 2, 2008
Why are there mergers and acquisitions? Mergers and acquisitions take place for a number of reasons, such as refinancing for a better price, amplifying expansion, and submerging risk through diversification. New entities may drag behind after a merger takes place due to the higher cost of matching different and unconnected economic activities. Diversification by business groups may also reduce technical effectiveness. When a merger takes place, a bigger business groups emerges from the two which usually will have more economic and political influence In this paper, we will assess the impact of mergers and acquisitions on firms, including sensible" and dubious reasons for, and benefits and costs of, cash and stock transactions. We will also be sure to examine the financial risks of merging with or acquiring an organization in another country and how those risks could be mitigated.

First we will we will assess the impact of mergers and acquisitions on firms while also touching on the benefits and costs of, cash and stock transactions. Who gains from mergers? Typically, the selling firm tends to be impacted favorably by the merge and/or acquisition rather than the firm acquiring the selling firm. Studies demonstrate that most of the benefits from mergers and acquisitions were earned by the selling firm, not the acquiring company. For example, recent research found that holders in the acquiring firm earned an estimated 4% return on their investment with the completed acquisition in contrast to the holders of the target firm whom typically received a 30% return on their investment. So, to imply that mergers and acquisitions do not create benefits would not be correct because the acquiring firms are paying too much money for their acquisitions.

There are many sensible and dubious reasons for mergers and acquisitions. Many times the reason for acquisitions is for expansion. Expansion that is not limited by internal resources means there is no reduction of working...

References: realey, R., Myers, S., Marcus, A. (2004). Fundamentals of Corporate Finance. Chapter 22: Mergers, Acquisitions, and Corporate Control. Retrieved from the internet on April 22, 2007 from https://ecampus.phoenix.edu/content/eBookLibrary/content/eReader.h#Investopedia.com.(2007). Retrieved from the internet on April 22, 2007 from www.investopedia.com/university/mergers/mergers4.asp - 36k -
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