Mergers & Acquisitions
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The motives behind one company deciding to either join forces with another business, or indeed to actually takeover ownership are numerous:

  • Economies of scale, if two businesses share resources, they should be able to reduce costs and increase productivity.

  • Merging/taking over another business opens up greater technical knowledge, which can increase research and development on new products.

  • Having more assets allows businesses to raise more capital.

  • One business buying another, may decide to do so, in order bring in extra sales revenue.

With mergers, the two companies involved are often agreeable to joining forces, as long as their shareholders vote to agree on the merger. With acquisitions, this is not always the cast, more often or not, it is based on hostile takeovers where one business decides to buy another business by, purchasing all the shares in the business.

Ways in which acquisitions work include:

  • The buying business, purchasing a majority stake in a business.

  • The buying business, then offering the remaining shareholders one of the following: (a) Cash prices for shares held; (b) Share swap, buying business shares for shares held; (c) Share swap with cash adjustments. 

In the London Stock Exchange, there is a mergers panel, known as the City Panel on Takeovers and Acquisitions which oversees mergers.

In the UK if one business is thought to have attained too much market power through mergers and/or acquisition it is said hold monopolistic powers. Luckily we have the Monopoly and Mergers Commission (MMC) to prevent businesses from becoming too powerful. The MMC has in the past blocked mergers from taking place.

Although the hard fact of a free market economy, is the survival of the fittest, where the strongest and often most cash rich businesses survive, society in general must ensure no business becomes too powerful.

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(c)  Est 08/00 - Last Updated 28/05//2001