BUSINESS ETHICS AND LEGAL ISSUES

Abstract

This document posses a basic discussion on the concept of mergers and acquisitions. In addition to that the briefly touch of details and then to find its merits & demerits. Discussion on the reason behind the mergers and acquisitions i.e. the reasons and needs for merging. Moreover, it will discuss two companies who have merged and its effects on it as a result of merging.

Business Ethics & Legal Issues

Introduction

Mergers and Acquisitions also known by the acronym in English "M & A" refers to an aspect of corporate strategy of top management that deals with the merging and acquiring other companies, as well as other assets. The decision to effect a merger or acquisition, a decision is economic, specifically is a decision of investment, meaning the allocation of resources in hopes of future revenues sufficient to recover the funds invested and achieve some benefit. So a merger, or acquisition will be successful if the purchase price is less than the present value (PV) of cash flow (EF) associated with incremental operation. If so, this investment decision creates value for shareholders and can be considered successful; otherwise it is said that destroys value and is a failure.

Discussion

Types of buyers

Mergers and acquisitions are motivated by different objectives that define two different types of buyers:

Strategic Buyers: it is called strategic buyers to those who are active in an industry and try to stay there and consolidate in the market.

Financial buyers or Capital Investment: They are characterized by acquiring a company with the objective of increasing its value and then sell at a higher price. In this operation, it's essential before making a purchase, know how they can be out of business, this being the main difference with strategic buyers (Vachon, 2007).

These conflicting objectives have in common the need to add value to the acquired company. Mergers and acquisitions are a good idea when the market value of the combined company is greater than the value of the two companies independently considered, when the result is greater than the sum of the parts, it is said that there was a synergistic effect. Likewise, all mergers and business combinations have the potential to eliminate competition between them creating monopolies (Pennsylvania Bar Institute, 2005).

Reasons that create value

While the primary objectives of financial and strategic buyers are different, both have in common the need to add value to the acquired company. The forms that buyers are to add value through a strategy of mergers or acquisitions are:

Horizontal integration: means and horizontal integration, buying or assimilation with another corporation competing in the identical division of activity. The basic reason of in search of this kind of integration is the hunt for economies of scale (increase output when creating a monopoly in the market) to decrease the average unit cost (DePamphilis, 2001).

Vertical Integration: Defined in this way to the acquisition of a company from its supplier in order to produce their own inputs (backward integration) or any of their clients to have their own production (forward ...