Reasons for Mergers & Takeovers
- Firms will often grow organically to the point where they are in a financial position to integrate with others
- Integration in the form of mergers or takeovers results in rapid business growth and is referred to as inorganic growth
- Integration in the form of mergers or takeovers results in rapid business growth and is referred to as inorganic growth
- A merger occurs when two or more companies combine to form a new company
- The original companies cease to exist and their assets and liabilities are transferred to the newly created entity
- The original companies cease to exist and their assets and liabilities are transferred to the newly created entity
- A takeover occurs when one company purchases another company, often against its will
- The acquiring company buys a controlling stake in the target company's shares (>50%) and gains control of its operations
- The acquiring company buys a controlling stake in the target company's shares (>50%) and gains control of its operations
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There are several reasons why companies may choose to pursue mergers and takeovers
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Strategic fit
A company may acquire another company to expand into new markets, diversify its product offerings, or gain access to new technology E.g. in 2010 Kraft Foods purchased Cadbury's to increase its product offering and expand business sales in the United Kingdom -
Economies of scale
Growth creates economies of scale by allowing companies to reduce costs and increase efficiency through the consolidation of operations -
Synergies
Synergies are the benefits that result from the combination of two or more companies, such as increased revenue, cost savings, or improved product offerings
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Elimination of competition
Takeovers are often used to eliminate competition and the acquiring company increases its market share. E.g. Meta, the parent company of Facebook purchased WhatsApp in 2014 and continued to run the messaging service alongside their own Facebook Messenger
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Shareholder value
Mergers and takeovers can also be used to create value for shareholders. By combining companies, shareholders can benefit from increased profits, dividends and stock prices
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