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Synopsis:
1) Introduction 2) Definition 3) What makes Mergers and Acquisitions 4) Difference between Mergers and Acquisition 5) Advantages 6) Disadvantages 7) Examples 8) Conclusion
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Introduction
Mergers and Acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.
Definition
The main idea: - One plus one makes three. The equation is specially based on Merger or Acquisition. The key principle behind buying a company is to create share holder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies together. 1. Acquisition: An acquisition is the purchase of one company by another company. Acquisitions are actions through which companies seek economies of scale, efficiencies and enhanced market visibility. All acquisitions involve one firm purchasing another - there is no exchange of stock or consolidation as a new company. Acquisitions are often congenial, and all parties feel satisfied with the deal. Acquisition has become one of the most popular ways since 1990. Companies choose to grow by acquiring others to increase market share, to gain access to promising new technologies, to achieve synergies in their operations, to tap well-developed distribution channels, to obtain control of undervalued assets, and a myriad of other reasons. So, because of the appeal of instant growth, acquisition is an increasingly common way to expand. 2. Mergers: The combining of two or more entities into one is called merger. Therefore, a merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated.
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4) Merger is expensive than acquisition (higher legal cost). 5) It is time consuming and the company has to maintain so much legal issues. 6) Through merger, shareholders can increase their net worth. 7) Dilution of ownership occurs in mergers.
6) Buyers cannot raise their enough capital. 7) The acquirer does not experience the dilution of the ownership. 8) Dr. Reddy's Labs acquired Betapharm through an agreement amounting $597 million.
8) For example, Glaxo Wellcome and SmithKline Beehcam ceased to exist and merged to become a new company, known as Glaxo SmithKline
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To enter a new market. To introduce new products through Research and Development To achieve Administrative benefits. To increased market share. To gain higher competitiveness. For industry know how and positioning.
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Conclusion
A merger can happen when two companies decide to combine into one entity or when one company buys another. An acquisition always involves the purchase of one company by another. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a merger will deliver enhanced market power.
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