Question

Please explain why companies may decide to use M&A and the potential benefits of such actions. Then explain the alternative types of reorganizations and how these transactions work to accomplish the stated acquisition or divestiture goals.

Answer 1

Merger and Acquisition (M&A) is the way where two or more companies comes together to
form a new company or one company acquired another. Benefits of M&A are as following:
(1) It enhance shareholder value as gemerally seen potential capacity after merger got increased
and due to synergic benefits financial growth increased and return to shareholders got enhanced.
(2) After M&A management getting strong and take effective decision to cost reduction as competion
got reduced and large scale production is expected.
(3) Market Value got increased with increased production, competitive advantages and synergic effect.
(4)After M&A reduction in competition is expected as competitor comes together .
So a company decide the M&A in the following situation:
> Net worth got eroded and liquidity has badly damaged and they have two choice only liquidation or M&A
> If competition level is very high and they want to reduce competition
> It seems synergy level will get increased heavy with M&A option
Alternative Type of Reorganisation :
Acquisition : When a company acquired another company's assets. The company who acquired called
as transferee and other company called as transferor company. This alternative taken when financial
issue suffering by transferor company and looking for liquidation.
Subsidiary : When a company acquired at least 50% voting right of another company then other company
shall be subsidiary of holding company who invested. As a major investor will control the subsidiary. This
alternative is adopted when another company suffering from liquidity issue and unable to manage the same.
Merger: When two or more company jointly incorporate a single company. These companies assets got
transferred to this new formed corporation. This alternative is used to reduce the competition.