What are the conditions for a horizontal merger to create value for the shareholders of the...

What are the conditions for a horizontal merger to create value for the shareholders of the acquirer?

Expert Solution

Horizontal mergers means when one company acquires another company in the same industry. In this type of mergers both the compaies operates in the sam industry.

It helps in the value creation of the stakeholders in following manners:-

1. The market share of the acquired company will be absorbed in with the acquirer company resulting in the higher market price of the shares.

2. Exisiting assets of the acquired company can be put to use and the installed capacity of the company will increase resulting in covering hire share of supply in the market.

3. This provides for greater potential synergies in eliminating redundant functions within the two firms and potentially increased pricing power with both vendors and customers.

4.A horizontal merger also helps reduce the threat of competition in the marketplace, thus increasing market price of the newly formed company.

5. It also provide companied to reduce tax burden by setting off the losses of the acquired comapny, which will have a good impact on the share prices of the company.

jeff jeffy answered 2 years ago

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