MERGERS

Mergers



Mergers

Introduction

Banks play a crucial role in propelling the entire economy of any nation, of which there is a need to reposition it for efficient financial performance through a reform process geared towards forestalling bank distress so, for this purpose, it is necessary to have mergers and acquisitions to better serve the economy. This paper addresses the question: “Do Mergers Create Value for the Offeror and Offeree?” Moreover, the concept of synergies and different theories in this regard are presented along with a real time example.

Mergers and Acquisitions

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 considers the merger or takeover to a profitable investment. Secondly, the reduction in expenditure, in the corresponding fields. 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. There are numerous theories related to mergers and acquisitions.

Theory of Operating Synergies

This theory states that the economies of scale do exist in industry and before mergers takes place; the activities performed by firms are insufficient in order to destroy the economies of scale. Operating economies of scale can be achieved through vertical, conglomerate and horizontal mergers. Operating synergies occur due to indivisibility of various resources such as equipments, overheads and people. It is also stated that the productivity of these resources will increase when they are divided over a huger number of units of production.

Operating synergies includes economies of scale production and economies of flexibility. It relies less on tangible resources of the combining companies, but rather on team management skills, indigenous association's competence of participants, allowing them to achieve success in the competition and distinguish these companies in their competitive landscape. Operating synergies of the first kind leads to an increase in the efficiency of current operations reduce direct and indirect costs at different stages of development and promotion of the product to the customer. Operating synergies of the second type allows you to avoid additional investments: the development of a marketing network of the company, its market research, product promotion, and finally, in staff development and management team. Operating synergies of the third kind makes the analyst pose the question of how quickly the company will begin to solve specific problems of growth after the merger. This synergy is reflected in accelerating the movement of the company's strategic path.

Theory of Efficiency increase / Restructuring

This theory states that mergers occur in order to improve the efficiency and performance of the firms. The theory explains that an organization having unsatisfactory performance will aim to increase its performance and efficiency to a higher level through mergers. The firms combine or merge in order to increase their output, improve product quality, reduce production cost, acquire new technologies or come up with entirely new ...