Why Companies consider and carry out Mergers and Acquisitions Activity, the Legal Framework and the Outcomes for different Stakeholders in different Industry Groups

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TABLE OF CONTENTS

CHAPTER2: LITERATURE REVIEW1

Rationale of the Literature1

Theories related to Mergers and Acquisitions2

Theories of Agency Problem4

Neo-Classical Theory of Acquisition5

Hubris Theory or Winner's Curse of Mergers6

Free Cash Flow Theory6

Managerialism7

Scale Economies8

Market Power9

Financial Motive11

Synergistic Motive11

Theory of Operating Synergies12

Comparative Analyses-An Overview of the Key Theories and Their Comparison13

REFERENCES16

CHAPTER2: LITERATURE REVIEW

Rationale of the Literature

The purpose of the literature is to uncover the impact of mergers and acquisitions on shareholder's wealth, relational and behavioural patterns. By pacing different theories related to mergers and acquisition, this theoretical framework will cover theories presented by various authors.

Review of Aims

This research is aimed at highlighting and identifying different impact of different activities carried in merger and acquisitions on the wealth of shareholders and operating performance. It also aims at considering how the managers will be controlling and managing the post and pre merger situations.

Furthermore, the aim of the researcher is to gain analytical skills under with the assistance of the teachers which will help in the future at various workplaces.

Mergers and Acquisitions

Merger and Acquisitions used at most to have a competitive edge. There were several reasons that contribute to the M & As of the firms like, market share improvement, new markets entry, new product development with research and design etc. The main benefit of mergers and acquisition is that the acquiring firm consider the merger or takeover to a profitable investment. Secondly, the reduction in expenditure in the corresponding fields (Jesper, 2002, 88). Another reason behind the mergers is that the merged firms can operate easily in the offshore overcoming the cross-border affect and even gains the potential to influence the government decision, as well.

M&A's and corporate re-structuring are now considered to be an important part of the corporate world. In this, two separate companies come together to form a big organisation. There are numerous theories related to mergers and acquisitions.

Theories related to Mergers and Acquisitions

The final alternative mode for achieving firm growth is actively engaging M&A transactions, which are generally considered to be among the major investment decisions of acquiring firms. This mode is frequently called an external method because firms seek growth outside of their boundaries, implying that firms achieve their growth goal by acquiring .external business units. It is believed that in general it is cheaper and easier to employ acquisition-based growth strategies, compared to other alternatives. For instance, Lins (2003) and Jesper (2002) empirical studies revealed that a high proportion of growth could be attained through external acquisitions while the amount of investment at one time may be much larger than with other alternatives.

Early studies on firm growth typically view M&A from a macro perspective and are more concerned with its effect on industry concentration. M&A's specific effect on firm growth is then implied from such discussion. A typical example is Hannan and Carroll (2003) seminal analysis of the size distribution of firms. In a chapter designated to the effect of ...