mergers ppt

8/2/2019 Mergers Ppt

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MERGERS



MERGERS… It is a combination of two or more

enterprises whereby the assets andliabilities of one are vested in the other,

with the effect that the former enterpriseloses its identity.



MOTIVATION FOR MERGERS..

To diversify the areas of activity and thereby toreduce business risks.

To achieve optimum size so as to reap thebenefits of economy of scale.

To reduce the duplicate expenses and thereby

to improve the profitability.

To serve the customer better.



MOTIVATION FOR MERGERS..

To have cohesiveness in control of theorganisation.

To grow without any gestation period.

Inorganic growth is believed to be muchfaster compared to organic growth.



TYPES OF MERGERS..

HORIZONTAL

MERGER

VERTICAL

MERGER

CONGLOMERATE

MERGER

PRODUCT

EXTENSION

MERGER

MARKET

EXTENSION

MERGER



HORIZONTAL MERGER..

It refers to the merger of two companieswho are direct competitors to one another.

Example:Boeing-McDonnell Douglas,Staples-Office Depot.



VERTICAL MERGER..

It is the merger of firms that have actual or

potential buyer-seller relationships.

Example : Time Warner-TBS , Disney-ABC

Capitol Cities.



CONGLOMERATE MERGER..

Consolidated firms may sell related

products, share marketing and distribution

channels and perhaps production

processes; or they may be wholly unrelated.

Example : Pepsico-Pizza Hut; Proctor &

Gamble-Clorox.



MARKET EXTENSION MERGER..

It is a mergers join together firms that sell

competing products in separate geographic

markets.

Example : Time Warner-TCI.



PRODUCT EXTENSION MERGER..

It is executed among companies, which selldifferent products of a related category.

They also seek to serve a common market.

This type of merger enables the new company to go in for a pooling in of theirproducts so as to serve a common market.



ADVERSE EFFECT OF MERGERS..

Mergers especially horizontal reduces thenumber of players and consequently thecompetition in the market.

Mergers amongst rivals is invariably unfriendly to consumers.

Mergers often fail to create harmonisationin human relation.



ADVERSE EFFECT OF MERGERS..

Mergers often results in increased marketshare and thereby leads to dominancewhich makes the resultant enterprise

complacent and thereby brings inefficiency in the organisation.

Mergers between healthy and unhealthy enterprises reduces the tax liability andthereby makes the State’s exchequer poor.



ADVANTAGES OF MERGERS..

A merger does not require cash.

A merger may be accomplished tax-free for bothparties.

A merger lets the target (in effect, the seller)realize the appreciation potential of the mergedentity, instead of being limited to sales proceeds.

A merger allows the shareholders of smallerentities to own a smaller piece of a larger pie,increasing their overall net worth.



ADVANTAGES OF MERGERS..

A merger of a privately held company into apublicly held company allows the targetcompany shareholders to receive a publiccompany's stock, despite the liquidity restrictions of SEC Rule 144a.

A merger allows the acquirer to avoid many of

the costly and time-consuming aspects of assetpurchases, such as the assignment of leasesand bulk-sales notifications.



DISADVANTAGES OF MERGERS..

Higher prices leading to allocative inefficiency.

Lower Quantity and reduction in consumer

surplus.

Monopolies are more likely to be productively inefficient and not produce on the lowest point

on the average cost curve.

Easier to collude.



DISADVANTAGE OF MERGERS..

If there is less competition complacency amongstfirms can lead to lower quality of products andless investment in new products.

Fewer firms therefore less choice for consumers.

The motives for mergers is often poor. E.g.managers may prefer to work for a big company where they get higher salaries and more prestige.



DISADVANTAGES OF MERGERS..

With increased supernormal profits the firmcan engage in cross subsidisation or predatory pricing increasing Barriers to Entry.

The new firm can pay lower prices tosuppliers.

Mergers can lead to job losses.

If the firm becomes too big it may suffer fromdiseconomies of scale.



ANY QUESTIONS??

THANK YOU…

mergers ppt

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