Question

(13) Mergers

Which two companies do you think would be a good merger? why?

Answer 1

Merger definition- It is the combination of two organisations into a single organisation with a purpose to enhance operational and financial capabilities.

Merger between Maruti Suzuki India Limited and Ashok Leyland should be a good merger in the Indian context because of the following reasons

1. Product diversification- Maruti Suzuki is industry leader in passenger vehicles with market share of 50% (approximately) and Ashok Leyland is second largest player in commercial vehicles space with market share close to 20% (approximately). This will broaden the product portfolio and gain greater chance of market share in the industry.

2. Gaining competitive advantage- To take the advantage of distribution and marketing network. As Maruti Suzuki has more than 1300 dealerships across India, Ashok Leyland gets the advantage of strong distribution network and vice versa for Maruti Suzuki.

3. Expansion to new markets- With this merger, the new entity can expand to newer markets as Maruti Suzuki is largely present in Indian market and Ashok Leyland has a good presence in the overseas market.

4. Economies of scale- As it is a horizontal merger (Merger between same line of business), new formed entity will reap the benefits of economies of scale which can cut costs in terms of strategic partnership with suppliers and auto ancillary manufacturers. Moreover, it can obtain low cost funding from the financial institutions.

5. Eliminating competition- This merger will help in eliminating completion as it will create a behemoth in the auto space. It will help in tackling competition from TATA Motors, largest player in the commercial vehicle space has a sizeable market share in the passenger vehicle space.