International mergers have been spurred by the increase in World Trade and organization. Due to the slow down of economic activities in various countries, mega mergers have been put on hold which has greatly decreased the merging of many major companies and organization. The merging activity is expected to resume once the economic growth resume the trend. There have been quite significant increases in number of mergers in the recent years which were multi-national mergers due to:- – There were many countries applying for competition framework
– The numbers of transaction have been increasing significantly which have an international component leading to stimulation of international mergers. There are three significant types of international mergers:- 1. Mergers of Multinational Corporation- This type of merge mainly affects economics through effect on their subsidiaries. 2. Acquisition of domestic corporation by multinational corporations 3. Domestic corporation- This can become global corporation through acquisition of corporations at home and abroad.
International mergers basically create a need to coordinate enforcement and review effects by competition authorities both from regional and global levels. International mergers have great impact in across the boarder and multijundictional transaction management. In United State mergers have been a major factor which has affected the
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According to research made in many countries, it has been noted that mergers have not raised the expectation of those who are managing those transactions in them. Also research demonstrates that these mergers do not have any impact in improving the stock market or raised the financial status of buying companies. During merging, for it to be successful, transactions taken should be undertaken for strategic reasons like improving or developing competitive capabilities, merging should also be done to expand product, customer served or geographic presence.
It should by viewed as a mean to achieve more strategic outcome financial purchase price of mergers gives a detailed reflection on inherent value of the target of the business and also it portrays its value to the buying or merging firm. Mergers can result to very significant change for a business. Mergers give life within a business. For example, due to increasing competition rate of different business, mergers are the only thing which can strengthen the business towards its survival. Mergers basically generate long term growth for a business.
Mergers involves coming together of two companies but one will still continue to exist while the other on cease to exist. There are three categories of mergers which exist in business today:- – Horizontal- Two firms with similar products or services are merged. This enables the business to increase its market share when it merges with competing company. – Vertical- This is experienced in a business when two companies merge in value-chain for example, manufacturer merging with supplier – Conglomerate- This is when two companies merge which are from different industries.
This type of merge helps in smoothing out wide function in earnings and provides more consistency in long term growth. The underlying principles behind mergers are quite simple, it’s basically portrayed by simple arithmetic of 2+2=5 i. e. company A with a value of $2 billion can merger with company B which also has the same value of $2 billion and after merging their fatal value will add up to $5 billion. As a result of merging the two companies will have additional value which is referred to as synergy value. The synergy value can take in three forms:-
– Revenue: When two companies are combined, high revenue is realized if the operations of the two companies are separate. – Expenses: When two companies are combined then low expenses are realized if they are operated separately. – Cost of capital: when two companies combine, an overall low cost of capital is experienced (Meredith, 1999, pg 46). Many mergers are basically drives to merger in order to cut down the cost. Cost can be saved when some services such as Human resource, Accounting, Information technology are eliminated in a business.
Most of the mergers, however, seem to have strategic reasons as to why they want to combine the business. There strategic reasons can include:- – Positioning: – The managers of business values taking advantage of future opportunity that can come in when two businesses are merged. Many companies are motivated to take position themselves in order to take advantage of the emerging trends of businesses in the market place. – Gap filing- In many cases, there are some business which experiences extreme weakness such as that of poor distribution, while others have an extra strength.
When these two companies merge the gap between them can consequently be filled which makes it essential for long term survival. – Organizational competencies- This is facilitated by acquiring human resource and intellectual capital which can help to improve innovative thinking and development within a company. – Broader market access- when a business merges with a foreign company it can give it a quick access and an opportunity to venture into the emerging global market. Some of the merging processes which take place are driven by basic business reasons. http://72. 14. 205. 104/search?
q=cache:oa-SfUwMmToJ:www. exinfm. com/training/pdfiles/course07-1. pdf+principle+strategic+reason+which+lie+behide+mergers&hl=en&ct=clnk&cd=4&gl=ke These reasons are diverse and are experienced when the business continues with another in order to increase its processes. These reasons include:- – Bargain purchase: It’s quite cheaper to acquire a company and invest in it internally than starting up a new company. For example, when a given company wants to expand its fabrication facilities and it views the market and realizes that there is another similar company which has it facilitates which are idle.
It’s quite cheap to acquire the idle facility then you develop it than to go out to build new facilities on your own. – Diversification: A business may find it very necessary to smooth out earnings and achieve more consistent long term growth and profitability. This is mostly done to those companies which are at their very last mature stage where future growth of that company is not expected. Traditionally, financial management of different companies did not support diversification through mergers. Due to mergers investors can diversify but not management of companies.
For example, managing a steel company is not the same as managing a software company. – Short term growth: Management of the business may be experiencing a lot of pressure to turn round sluggish and profitability of a business. Mergers can boost poor performance of the business. – Undervalued target: when a given company is under valued it basically presents good investment. Some mergers are executed from merging for financial reasons and not strategic reasons. Poor performance of a company can replace the teams’ hopes of increasing depressed value. Mergers are basically aimed at cutting the cost.
Due to diligence this might result in several upward adjustments to earning of target companies. This applies where the company in question is a private company and the excess are common. For example: – Officer’s salaries are excessive in relation to what they do. – When salaries are high then the pensions are high The main objectives of mergers are to get and experience real profits that will exist after the mergers. Some business can experience reverse mergers but this is quite popular with small start up companies which have no trouble and expenses of an initial public offering.
Reverse mergers as the name implies, works in reverse whereby a private company can acquire publicity so as to gain a quick access to equity market for raising enough capital. This type of merge is mostly experienced by internet companies. Mergers are also subject to government regulation. This is emphasized by the government because they prevent the company fro forming monopoly through merging with other companies. In any competitive market place, prices are set equally for many products and services in the market. This can consequently result to company experiencing low prices and high level of production.
If a company has monopoly it leads to company producing low levels of products and high prices in the market. There are quite a number of reasons why many business merger. Some of the basic reasons why businesses come to mergers are:- – Companies are willing to come to mergers so as to improve efficiencies and lowering the cost. When business merge, efficiency is definitely improved since the two merging companies have different management and when they are combined they are better than one and therefore efficiency is improved due to diverse management skills used by the two businesses.
The cost of resultant company after merging can go down since the two companies can use little manpower and management staff than when the companies can use little manpower and management staff than when the companies are operated differently. Reduced prices raise the standards of company since it experiences more sales than before (Mandelker, 1974, pg 320). – Some other companies mergers are meant to increase the market shares and gain competitive advantage of the merging company. When business come to merger the market shares definitely increases due to increased market of companies commodities and services.
They consequently gain the market advantage by increased market size since both companies have established their own markets and when they come together, they have an access to all these marker places. – The main goal towards mergers is generation of synergy value. This is enabled by good strategic management. A well realized plan will drastically improve all the chances of realizing synergy value. Mergers and takeovers are used interchangeably which basically means any transactions that form one economic unit from two previous ones. Company can only agree to enter it mergers if the net profit realized is higher than before.
For example, (company A + company B)>NPV (company A) + (company B) where NPV in this case is meant to mean Net Present Value. This signifies that the economic value of the two companies when its combined is much greater than the economic value of these two companies when they were operating separately. According to financial theory, mergers mainly occurs in the hope that the businesses will acquire a positive synergistically effects. This effect can be felt as a result of business gaining access to new technologies or market place benefiting from the economies experienced as a result of research production or tapping sources.
Mergers increases managerial powers of the managers involved in the merging business. It also ensures that corporation is replicated so as to favour the consumers. These management skills are enhanced as a result of companies with different managerial skills coming together which incorporates the skills from these two different companies into one thing and thus consequently increases the skills used in managing the new business which has come up as a result of merging.
Managers can also increase and gain more powers through mergers this is because they are held with a greater responsibility of managing a bigger business than before. The driving and evolutional ideas, shaping the way the technology flows, information and taste of managers are enhanced due to the coming up of both businesses. Managers can use mergers in order to enhance their powers and for them to gain these powers, managers provide an improved medium through which their stories can be replicated. They shape their ideas through instructions from people, product and services that they deal with.
Managers try to gain knowledge by acquiring more strategic resources. http://72. 14. 205. 104/search? q=cache:SBHyCdZWQXYJ:jom-emit. cfpm. org/2001/vol5/vos_e%26kelleher_b. html+take+overs+in+international+mergers&hl=en&ct=clnk&cd=8&gl=ke Most take over on mergers in business are mainly built around the battle for internal powers. They mainly have a strong bearing on struggle for power with an increased industrial might for the company translating into greater influence, prestige and pay for the executives. Mergers are also built on grounds of external power.
When business merge they combine their corporation aim which helps the business in enhancing their market might, their innovative strengths, their innovation strengths, their bargaining power and their ability to influence other economic actors. Mergers also help the merging company to increase their organizational network which helps in increasing the ability of the company. Foreign and domestic firms which take strategic alliance with each other are liked to strategic alliance group which takes their international mergers strategies.
For example, one can compare two parallel strategy alliance groups with duopolistic foreign market. The leader group which has a large firm scale will take over the international merge decision faster and share the competitive ability before the following taking international merge decision. In contrast the follower group which has a small firm scale takes the international merge decision would only follow the leader group so as to create more value in waiting for adopting international merge (Bell, 1975, pg 74).
According to research their have been quite a significant Failure in international mergers. Some of the reasons behind failure are:- – Poor strategic fit – Cultural and social differences – Incomplete and due diligence which is incomplete – Integration management is poor – Too much pay – Overly optimistic Therefore international mergers provide a very effective across the boarder and a multijuridictional transaction management.
Bell D, 1975, Power Influence and Authority, Oxford Press: New York, pg 68-79. http://72. 14. 205. 104/search?q=cache:oa-SfUwMmToJ:www. exinfm. com/training/pdfiles/course07-1. pdf+principle+strategic+reason+which+lie+behide+mergers&hl=en&ct=clnk&cd=4&gl=ke Mandeilker G. , Risks and Returns, the Case of Merging Firms: Journal of Financial Economics, 1, 1974, pg 303-335. Meredith M Brown, 1999, International Merger and Acquisitions: An Introduction, Kluwer Law International: United State, pg 38-54. http://72. 14. 205. 104/search? q=cache:SBHyCdZWQXYJ:jom-emit. cfpm. org/2001/vol5/vos_e%26kelleher_b. html+take+overs+in+international+mergers&hl=en&ct=clnk&cd=8&gl=ke