The economy today is not stabilized. Even big companies have to
confront the ups and downs that come their way. But the only thing that
keeps them going is survival. They have to survive in the market and
progress swiftly or gradually. One strategy to advancement is that of
‘mergers’ between companies. There are numerous mergers that take place
locally but they do not have a great effect on the market especially
the consumers. But the mergers that take place at the national or
international level have a profound impact on the economies of the
concerned countries.
There are different reasons behind a merger of two or more companies. But first of all there exist diverse types of mergers.
a) Horizontal Mergers- where two competing companies conjoin to form a
single large company. The companies in horizontal mergers are selling
the same product in the same market and so are contenders to each
other. Such a merger can have a tremendous influence on the market from
creating monopoly to escalating prices of the commodity. This is
precisely the reason that The Federal Trade.
b) Commission that is worried about the market and the consumers keeps
a hawk’s eye on such mergers and at times detains the companies from
merging in the interest of the people.
c) The Vertical Mergers- are the mergers between a supplier and the
distributor company of the supplies. This is an anti competitive merger
but can be highly beneficial to the company. It is because the
distributor will no more have to pay for the manufacturing of the
supplies, it gets the product at the base price. So there is good cost
saving due to this. Vertical merger also rules out lot of competition
from the market.
d) Market Extension Merger is between the companies selling same
product but in different markets. This merger enhances the market for
the two companies since they now act as one sole company.
e) Product Extension Merger is like the one between an eminent company
making motor parts and another that makes their own cars. So, the
companies involved here sell different but more or less the same
product in the same market. This merger promotes the sale of both the
companies significantly.
f) Conglomeration is a merger where the concerned companies have nothing in common to sell.
There are various reasons behind merger of companies. Like
a) Synergy factor prompts the merger of most of the companies. The
synergy in business pertains to the cost saving and revenue
enhancement. The companies after merger decrease the staff keeping only
the skilled labor, work with a single managing director, CEO etc. So
there is good outlay saving. Moreover the economy of the sale i.e. the
purchasing power of the company booms after merger.
b) To increase the output and rule the market- many mergers are made
with the intention to oust the competition and jointly rule the market.
This presupposes healthy relations between the competing companies.
c) Mergers also take place when a company is not able to perform well
due to some or the other cause like the lack of required investment in
the form of capital, tremendous competition etc. In such a situation
this company can merge with one its parent company or any other company
that has faith in the prior goodwill of the declining company and in
its potential to grow and enhance. So companies also merge in order to
overcome their internal inconsistencies.
d) Many a mergers besides economically are also politically driven.
e) Acquisitions which imply taking over of one stronger company with
the other weaker one are also at times veiled by the name of merger.
However, the directors who plan to merge their companies should
actually contemplate over it, keeping in mind all the possible pros and
cons. They must seek advice from neutral financial consultants who do
are more inclined towards the welfare of the company and not their own.
Their own benefit is also hidden in a merger since the wages of the
employees increase with the advancement due to merger. So it is
recommended to take advice from all those who are the well wishers of
the company before taking any concrete step in this direction.
