Question

Benefits and Cost of Mergers:

Who usually benefits from a merger?

Who usually loses in a merger?

Answer 1

Benefits:

1) Economies of Scale i.e. Reduction in Average Cost of Production, due to large size.

2) Research & Developmemnt: More Funds will be available to the combined entity.

3) Synergy: After merger, the value of merged entity will usually be higher than the combined value of both the individual entities before acquisition.

4) Avoid Duplication or Copying of Products.

5) It will reduce shutting down of non performing companies.

Therefore, Merged Entity i.e. Both the Companies will get advantage from the Merger(unless the company is acquired for less than its individual value, which is rare).

Costs:

1) Merger might lead to a very high market share, sometimes even a monopoly. In that case, they might charge higher prices.

2) Due to low requirement, many employees might lose jobs.

3) Less cj]hoice for consumers.

Therefore, Merger will prove costly or disadvantageous for Consumers and Employees.