Corporate Mergers and Acquisitions influence the economy as a whole as through restructuring of industries. These Corporate Mergers and Acquisitions increases competition in the market and raises the vulnerability of the stockholders as the value of stocks experience ups and downs after a merger or acquisition.
Although the concept of Merger and Acquisition are different from one another, both can be used as engines of growth. Corporate Mergers and Acquisitions are instruments which can instantly result in expansion of production capacity.
Corporate Mergers and Acquisitions results in Skill Transfer and other Sharing Activities. After a company is merged with another or is acquired by a bigger one, the former gains in terms of comparative advantage. After a Corporate Merger or Acquisition, production takes place on a large scale. This large scale production generates economies of scale. So, in a way Corporate Mergers and Acquisitions help companies to attain rapid growth.
A merger or acquisition not only benefits the big firm but also benefits the target firm. The target firm can get such a high bid that it exceeds the real market value of the target company. This can be possible in two cases. Firstly, when acquiring of the target firm is really crucial for the firm who wants to acquire it and when the target firm is more valuable to the acquiring firm than to any other bidder firm. Secondly, when the bidder firm is confident of acquiring comparative advantage in a short span through the acquisition of the target firm.
In case of a Corporate Merger or Acquisition, the distribution of value between the shareholders of the target company and the bidder company depends significantly on the relative bargaining power of the bidder firm and the target firm.
Last Updated on : 29th July 2013