Pros and cons of Corporate Mergers
Corporate mergers refer to the process where one company merges with another, often to form a new company. Closely related to merger is the concept of an acquisition. This is when one company acquires a controlling interest in another.There are 3 main types of Corporate Mergers.
Horizontal mergers, vertical mergers and conglomerate mergers. In a horizontal merger two or more similar companies merge. The benefits of a horizontal merger lie in in economies of scale as well as the elimination of competition. In a horizontal merger a firm could merge with a supplier or a customer. Benefits could include control and costs. A conglomerate merger involves companies with no direct relationship or market penetration.In the case of a corporate merger, two separate entities join to form one.
This could be where one company absorbs another or where 2 or more companies join to form a new company. The objectives of corporate mergers are as follows:- Increased market share
- Economies of scale
- Cost reduction
- Improvements in technology
- Improved R & D
- Bulk buying
- Financial benefits such as lower rates of interest
- Lifeline for struggling companies
There are also potential negatives when it comes to corporate mergers.
These include:- Monopolies and inflated prices
- Cultural and personal clashes can create conflict situations
- Miscalculations in valuations and projections can lead to the failure of a merger
- Job losses