Benefts of Mergers:

1. Economies of scale. This occurs when a larger frm with increased output can reduce average
costs. Diferent economies of scale include:
i) technical economies if the frm has signifcant fxed costs then the new larger frm would
have lower average costs
ii) bulk buying discount for buying large quantities of raw materials
iii) fnancial better rate of interest for large company
iv) Organisational one head ofce rather than two is more efcient
Note a vertical merger would have less potential economies of scale than a horizontal merger
e.g. a vertical merger could not beneft form technical economies of scale
2. International Competition. Mergers can help frms deal with the threat of multinationals and
compete on an international scale
3. Mergers may allow greater investment in R&D This is because the new frm will have more
proft. This can lead to a better quality of goods for consumers
4. Greater Efciency. Redundancies can be merited if they can be employed more efciently
Evaluation:
The desirability of a merger will depend upon several factors such as:
1. Is there scope for economies of scale
2. Will there be an increase in monopoly power and signifcant reduction in competition
3. Is the market still contestable (freedom of entry and exit)
Because of this the Competition commission looks at each individual case and assess its relative
merits and demerits.
Benefits of Mergers and Acquisitions are manifold. Mergers and
Acquisitions can generate cost efficiency through economies of scale, can enhance the
revenue through gain in market share and can even generate tax gains.
The principal benefits from mergers and acquisitions can be listed as increased value
generation, increase in cost efficiency and increase in market share.
Benefits of Mergers and Acquisitions are the main reasons for which the
companies enter into these deals. Mergers and Acquisitions may generate tax gains, can
increase revenue and can reduce the cost of capital. The main benefits of Mergers and
Acquisitions are the following
Greater Value Generation
Mergers and acquisitions often lead to an increased value generation for the company. !t
is expected that the shareholder value of a firm after mergers or acquisitions would be
greater than the sum of the shareholder values of the parent companies. Mergers and
acquisitions generally succeed in generating cost efficiency through the implementation
of economies of scale.
Merger & Acquisition
also leads to tax gains and can even lead to a revenue enhancement through market share
gain. "ompanies go for Mergers and Acquisition from the idea that, the #oint company
will be able to generate more value than the separate firms. $hen a company buys out
another, it expects that the newly generated shareholder value will be higher than the
value of the sum of the shares of the two separate companies.
Mergers and Acquisitions
can prove to be really beneficial to the companies when they are weathering through the
tough times. !f the company which is suffering from various problems in the market and
is not able to overcome the difficulties, it can go for an acquisition deal. !f a company,
which has a strong market presence, buys out the weak firm, then a more competitive and
cost efficient company can be generated. %ere, the target company benefits as it gets out
of the difficult situation and after being acquired by the large firm, the #oint company
accumulates larger market share. This is because of these benefits that the small and less
powerful firms agree to be acquired by the large firms.
Gaining Cost Efficiency
$hen two companies come together by merger or acquisition, the #oint company
benefits in terms of cost efficiency. A merger or acquisition is able to create economies of
scale which in turn generates cost efficiency. As the two firms form a new and bigger
company, the production is done on a much larger scale and when the output production
increases, there are strong chances that the cost of production per unit of output gets
reduced.
An increase in cost efficiency is affected through the procedure of mergers and
acquisitions. This is because mergers and acquisitions lead to economies of scale. This in
turn promotes cost efficiency. As the parent firms amalgamate to form a bigger new firm
the scale of operations of the new firm increases. As output production rises there are
chances that the cost per unit of production will come down
Mergers and Acquisitions are also beneficial
$hen a firm wants to enter a new market
$hen a firm wants to introduce new products through research and development
$hen a forms wants achieve administrative benefits
To increased market share
To lower cost of operation and&or production
To gain higher competitiveness
'or industry know how and positioning
'or 'inancial leveraging
To improve profitability and ()*
An increase in market share is one of the plausible benefits of mergers and
acquisitions. !n case a financially strong company acquires a relatively distressed one,
the resultant organi+ation can experience a substantial increase in market share. The new
firm is usually more cost,efficient and competitive as compared to its financially weak
parent organi+ation.
It can be noted that mergers and acquisitions prove to be useful in the folloing
situations!
'irstly, when a business firm wishes to make its presence felt in a new market. *econdly,
when a business organi+ation wants to avail some administrative benefits. Thirdly, when
a business firm is in the process of introduction of new products. -ew products are
developed by the ./0 wing of a company.
Employee Benefits under Mergers and Acquisitions in "#
The 1(mployee .etirement !ncome *ecurity Act1 was enacted in 2345. !t is also known as
(.!*A. *ince then programs for employee benefit have been a ma#or component of the
balance and income statements of 6* business organi+ations. "urrent law promulgations
have attached supreme importance to the presence of post retirement pension schemes
and welfare benefit schemes as a part of corporate obligation. As a result employee
benefit programs are affecting the viability of mergers and acquisitions in the 6*A.
(xpenses accruing due to employee benefit programs may not be fully reflected in a
company1s balance sheet. *ome employee benefit obligations may arise out of a change in
the corporate structure of a firm. .etirement income schemes and benefit plans may vary
from company to company. "ompanies going for mergers and acquisitions strive to iron
out the internal differences to maintain a specified level of employee satisfaction.
Advantages and disadvantages of acquisitions and
mergers
"osts of mergers and acquisitions
Mergers and acquisitions can be costly due to the high legal expenses, and the cost of
acquiring a new company that may not be profitable in the short run. This is why a
merger or acquisition may be more of strategic corporate decision than a tactical
maneuver. Moreover, if a poison pill unknowingly emerges after a sudden acquisition of
another company1s shares, this could render the acquisition approach very expensive
and&or redundant. 758
9 :egal expenses
9 *hort,term opportunity cost
9 "ost of takeover
9 )otential devaluation of equity
9 !ntangible costs
M/A activity can also be exacerbated by the short,term cost of opportunity or
opportunity cost. This is the cost incurred when the same amount of investment could be
placed elsewhere for a higher financial return. *ometimes this cost does not prevent or
deter the merger or acquisition because pro#ected long,term financial benefits outweigh
that of the short,term cost.
9 "onsumer and shareholder drawbacks
!n some cases, mergers and acquisitions may not only disadvantage the shareholders but
consumers as well. !n both cases, this may happen when the newly formed company
becomes a large oligopoly or monopoly. Moreover, when higher pricing power emerges
from reduced competition, consumers may be financially disadvantaged. *ome of the
potential disadvantages facing consumers in regard to mergers are the following. 7;8
9 !ncrease in cost to consumers
9 0ecreased corporate performance and&or services
9 )otentially lowered industry innovation
9 *uppression of competing businesses
9 0ecline in equity pricing and investment value
*hareholders may also be disadvantaged by corporate leadership if it becomes too content
or complacent with its market positioning. !n other words, when M/A activity reduces
industry competition and produces a powerful and influential corporate entity, that
company may suffer from non,competitive stimulus and lowered share prices. :ower
share prices and equity valuations may also arise from the merger itself being a short,
term disadvantage to the company.
Advantages & Disadvantage of a Joint Venture

There are many good business and accounting reasons to participate in a Joint Venture (often
shortened JV). Partnering with a business that has complementary abilities and resources,
such as finance, distribution channels, or technology, makes good sense. These are just some
of the reasons partnerships formed by joint enture are becoming increasingly popular.
! joint enture is a strategic alliance between two or more indiiduals or entities to engage in
a specific project or undertaking. Partnerships and joint entures can be similar but in fact can
hae significantly different implications for those inoled. ! partnership usually inoles a
continuing, long"term business relationship, whereas a joint enture is based on a single
business project.
Parties enter Joint Ventures to gain indiidual benefits, usually a share of the project objectie.
This may be to deelop a product or intellectual property rather than joint or collectie profits,
as is the case with a general or limited partnership.
! joint enture, like a general partnership is not a separate legal entity. #eenues, e$penses
and asset ownership usually flow through the joint enture to the participants, since the joint
enture itself has no legal status. %nce the Joint enture has met it&s goals the entity ceases
to e$ist.
'hat are the !dantages of forming a Joint Venture(
Proide companies with the opportunity to gain new capacity and e$pertise
!llow companies to enter related businesses or new geographic markets or gain new
technological knowledge
access to greater resources, including specialised staff and technology
sharing of risks with a enture partner
Joint entures can be fle$ible. )or e$ample, a joint enture can hae a limited life span
and only coer part of what you do, thus limiting both your commitment and the business*
e$posure.
+n the era of diestiture and consolidation, JV&s offer a creatie way for companies to
e$it from non"core businesses.
,ompanies can gradually separate a business from the rest of the organisation, and
eentually, sell it to the other parent company. #oughly -./ of all joint entures end in a
sale by one partner to the other.
The 0isadantages of Joint Ventures
+t takes time and effort to build the right relationship and partnering with another
business can be challenging. Problems are likely to arise if1
The objecties of the enture are not 2.. per cent clear and communicated to
eeryone inoled.
There is an imbalance in leels of e$pertise, inestment or assets brought into the
enture by the different partners.
0ifferent cultures and management styles result in poor integration and co"operation.
The partners don*t proide enough leadership and support in the early stages.
3uccess in a joint enture depends on thorough research and analysis of the
objecties.

4mbarking on a Joint Venture can represent a significant reconstruction to your business.
5oweer faourable it may be to your potential for growth, it needs to fit with your oerall
business strategy.
+t*s important to reiew your business strategy before committing to a joint enture. This
should help you define what you can sensibly e$pect. +n fact, you might decide there are
better ways to achiee your business aims.
6ou may also want to study what similar businesses are doing, particular those that operate in
similar markets to yours. 3eeing how they use joint entures could help you decide on the
best approach for your business. !t the same time, you could try to identify the skills they use
to partner successfully.
6ou can benefit from studying your own enterprise. 7e realistic about your strengths and
weaknesses " consider performing strengths, weaknesses, opportunities and threats analysis
(swot) to identify whether the two businesses are compatible. 6ou will almost certainly want to
identify a joint enture partner that complements your own skills and failings.
#emember to consider the employees* perspectie and bear in mind that people can feel
threatened by a joint enture. +t may be difficult to foster effectie working relationships if
your partner has a different way of doing business.
'hen embarking on a joint enture it&s imperatie to hae your understanding in writing. 6ou
should set out the terms and conditions agreed upon in a written contract, this will help
preent misunderstandings and proide both parties with strong legal recourse in the eent
the other party fails to fulfil its obligations while under contract.
! written Joint Venture Agreement should coer1
The parties inoled
The objecties of the joint enture
)inancial contributions you will each make whether you will transfer any assets or
employees to the joint enture
+ntellectual property deeloped by the participants in the joint enture
0ay to day management of finances, responsibilities and processes to be followed.
0ispute resolution, how any disagreements between the parties will be resoled
5ow if necessary the joint enture can be terminated.
The use of confidentiality or non"disclosure agreements is also recommended to
protect the parties when disclosing sensitie commercial secrets or confidential
information.
Impact $f Mergers And Acquisitions on or%ers or
employees!
Aftermath of mergers and acquisitions impact the employees or the workers the
most. !t is a well known fact that whenever there is a merger or an acquisition,
there are bound to be lay offs. !n the event when a new resulting company is
efficient business wise, it would require less number of people to perform the
same task. 6nder such circumstances, the company would attempt to downsi+e
the labor force. !f the employees who have been laid off possess sufficient skills,
they may in fact benefit from the lay off and move on for greener pastures. But it
is usually seen that the employees those who are laid off would not have played a
significant role under the new organi+ational set up. This accounts for their
removal from the new organi+ation set up. These workers in turn would look for
re employment and may have to be satisfied with a much lesser pay package than
the previous one. (ven though this may not lead to drastic unemployment levels,
nevertheless, the workers will have to compromise for the same. !f not drastically,
the mild undulations created in the local economy cannot be ignored fully.
Management at the top!
Impact of mergers and acquisitions on top level management!
!mpact of mergers and acquisitions on top level management may actually involve
a <clash of the egos<. There might be variations in the cultures of the two
organi+ations. 6nder the new set up the manager may be asked to implement such
policies or strategies, which may not be quite approved by him. $hen such a
situation arises, the main focus of the organi+ation gets diverted and executives
become busy either settling matters among themselves or moving on. !f however,
the manager is well equipped with a degree or has sufficient qualification, the
migration to another company may not be troublesome at all.
#hareholders!
Impact of mergers and acquisitions on shareholders!
$e can further categori+e the shareholders into two parts
The *hareholders of the acquiring firm
The shareholders of the target firm.
#hareholders of the acquired firm!
The shareholders of the acquired company benefit the most. The reason being, it is seen
in ma#ority of the cases that the acquiring company usually pays a little excess than it
what should. 6nless a man lives in a house he has recently bought, he will not be able to
know its drawbacks. *o that the shareholders forgo their shares, the company has to offer
an amount more then the actual price, which is prevailing in the market. Buying a
company at a higher price can actually prove to be beneficial for the local economy.
#hareholders of the acquiring firm!
They are most affected. !f we measure the benefits en#oyed by the shareholders of the
acquired company in degrees, the degree to which they were benefited, by the same
degree, these shareholders are harmed. This can be attributed to debt load, which
accompanies an acquisition.
Impact of a hostile takeover
(mployees
(mployees also go through a lot when a hostile takeover takes place. 6sually with a shift
of control&ownership comes lots of organi+ational change, sometimes new bosses, loss of
#obs and an overall attitude of <out with the old, in with the new<.
*ometimes the changes entail letting everyone go, other times the new corporation
maintains some employees for good or to train their own people. $hatever the decision
on employees, this can have a serious impact on employee morale.
-o matter what scenario goes down after a hostile takeover occurs, the employees are
likely to have some repercussions and big changes to deal with, regardless if they lose
their #ob or not.