Mergers Edited

Running head: MERGERS 1

Mergers

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MERGERS 2

Mergers

Mergers refer to a case where two existing smaller companies are brought together,

forming one large organization. This strategy in cooperates business aims at collating individual

operational and financial abilities of the first enterprises. The resultant company is bigger and

more competitive its market (Lebedev et al., 2015).

There are different types of mergers such as horizontal, vertical and concentric mergers.

The horizontal mergers occur where the first companies come together and operate from an

initial standard industry. Vertical mergers refer to where two companies run in a conventional

industry value chain. Lastly, concentric mergers arise from two related businesses coming

together though not from the same industry (Arvanitaki et al., 2017). Mergers serve a common

purpose with specific characteristics, costs, and benefits as discussed below.

Merits of a merger

Mergers facilitate network economies as one of its characteristics. This implies that

companies that exist across such savings are substantial, most often with a national look and

operational scale. Merging into big enterprises creates efficiency in industry, broader markets

and reduces functional costs

Mergers develop and encourage research. In today's business environments, a company's

research and its development are crucial for its sustainability in the long run. Owing to big

chunks of monies for such research, mergers tend to be more competitive and profitable than

smaller individual companies that may not necessarily have such funds at their disposal.

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Mergers facilitate reduction of duplication of roles and departments resulting in the

production of lower costs goods. Mergers prevent companies in the same industry from doing

what other smaller companies in the same sector do hence there is no duplication. Production is

in large scale and at lower costs facilitating reduction of products’ prices. Additionally, mergers

avert congestion on the areas different business premises would otherwise have been built

improving the environmental conditions (Deng, P., & Yang, M., 2015).

Mergers regulate the monopolies through reducing competition and low costs production.

The economy of scale in a networked economy is majorly characterized by mergers, large

companies lack monopoly powers especially from the benefits of large-scale production and

government's regulations.

Mergers facilitate large-scale production of goods resulting to the firms enjoying economies

of scale. They encompass more significant market shares from the collations of each firm’s

strengths and diminish the advertising costs per a unit of production. They also reduce the

business risks, increase management efficiency. Mergers also enable firms to enjoy broad capital

bases and reduce borrowing and interest rates.

Demerits of merging firms

Mergers allow limited choices for its end users. The customers are disadvantaged as they

have limited choices of products.

Mergers lead to increased products’ prices in a given market. Once smaller enterprises

merge into bigger ones, they have the ability to increase market prices. With even more

prominent market shares, these firms tend to determine prices for end consumers single-

handedly.

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Most mergers come with job losses. The case is highly prevalent in takeovers by other

assets stripping firms; the merging corporations often get rid of unnecessary resources such as

the human capital of the target company.

Mergers may lead to loss of market controls by some companies. Mergers In the past,

multinational companies formed from mergers have often had their workers demotivated,

especially with the change of their entire operating business environment. Additionally, the more

substantial firms may lose market control in the process and eventually face diseconomies of

large scale owing to the increase in the size of the company and its operations (Yunes et al.,

2016).

Instances of successful mergers are:

1. When Orange merged with T mobile in the United Kingdom on the grounds of the

creation of a network, produced in large scale and averted duplication.

2. When XM and Sirius radio merger of July 2008. The two rivals merged and increased

their revenue and market bases.

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References

Arvanitaki, A., Baryakhtar, M., Dimopoulos, S., Dubovsky, S., & Lasenby, R. (2017). Black

hole mergers and the QCD axion at Advanced LIGO. Physical Review D, 95(4), 043001.

Deng, P., & Yang, M. (2015). Cross-border mergers and acquisitions by emerging market firms:

A comparative investigation. International Business Review, 24(1), 157-172.

Lebedev, S., Peng, M. W., Xie, E., & Stevens, C. E. (2015). Mergers and acquisitions in and out

of emerging economies. Journal of World Business, 50(4), 651-662.

Yunes, N., Yagi, K., & Pretorius, F. (2016). Theoretical physics implications of the binary black-

hole mergers GW150914 and GW151226. Physical Review D, 94(8), 084002.

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