Question

Compare and contract the benefits and detriments of megamergers by describing potential impacts on other businesses and the economy. Please use Monsanto-Syngenta merger as reference.

Answer 1

So a merger between two entities is a complex process as there is so much of financial residue to be answered to the shareholders and no one can estimate the shareholders' reactions per se and how the financial markets are going to react is another important aspect as corporations use financial markets to raise capital.

There are many benefits and detriments of megamergers,

The main context or idea for initiating a merger is to control "Market share", for example taking Monsanto-Syngenta merger into account these are the 2 biggest companies out of 6 companies that control the market share to 62% worldwide in the Agri seed business, this can result in beating up the competitors and corporation can position themselves with dominant market share in the industry.

Economies of scale: This can be achieved as resources of these companies can be used by one another and material can be manufactured at lower cost. Taking Monsanto-Syngenta into account Monsanto has some real breakthrough in research in hybrid seeds, whereas Syngenta has a production variety, when these two entities have combined a lot of cost cutting can be achieved, thus increasing the revenues in the financial books.

Capital requirement: Some companies have a capital requirement (Usually Agri, manufacturing, electronics, Pharmaceuticals) for R&D purposes, through mega-mergers this capital can be achieved as a parasite business model can be used. In this case, Syngenta can focus on a long time for R&D whereas the other hand can focus more on business(Daily operations)

Other benefits (Generalised)

If corporations merging is not of investment grade, post-merger their financial condition might be stronger which can enable to raise capital in the market at lesser costs (Better credit rating).