Merger or Marriage

What are the main benefits assumed to flow from a merger or takeover? Why do so many mergers and takeovers fail to deliver improved financial performance? Illustrate your answer with relevant financial case analysis.

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Merger or Marriage?

Merger or Marriage? When I first researched this topic in the library, this result came up. As I learned from my continuous searching that merger is like a marriage. A merger is when two or more companies, join together to become one firm, often for financial matters, and both are equally involved in the matters of the company. On the other hand there is acquisition or takeover too, which is when two companies join, but the more stronger company takes over all the matters of the company. This essay will show the benefits of mergers and acquisitions, and show with case analysis why majority of the time they do not work out financially.

There are many main benefits assumed to flow when there is merger between two companies. Basically to start with both companies think they are better together than being two individual companies. The following benefits prove that this can be true. First of these benefits is the economies of scale, by applying economies of scale. Which means that due to increased production because of two companies coming together they reduce the cost of production, maybe produce or get more new technology, therefore creating more efficiency. When there is greater efficiency, there is improved EPS (Earnings per share)(which is the profit gained from every share of common stock), profitability as well as improved liquidity and having that access to cash. And as result end up with higher market share too. Also when the company runs more smoothly the gearing ratio also goes down, meaning there is less risk involved in investing in the coming, so the company borrow cash more without difficulty....