What are the characteristics of a company Merge & Acquisition of the late 1970s and early...

What are the characteristics of a company Merge & Acquisition of the late 1970s and early 1980s?

What were the characteristics of a company Merge & Acquisition in the rest of the 1980s?

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Expert Solution

About merger & acquisition:

In merger, there is complete amalgamation of the assets and liabilities as well as shareholders' interests and businesses of the merging companies.
Forms of merger :

Horizontal merger: Acquisition of a company in the same industry in which the acquiring firm competes increases a firm's market power by exploiting.
Vertical merger: Acquisition of a supplier or distributor of one or more of the firm's goods or services.
Conglomerate merger: Acquisition by any company of unrelated industry.

Acquisition may be defined as an act of acquiring effective control over assets or management of a company by another company with out any combination of businesses or companies.
A substantial acquisition occurs when an acquiring firm acquires substantial quantity of shares or voting rights of the target company.

Characteristics of a company merger & acquisition of the late 1970s and early 1980s as well as in the rest of 1980s:

Limit competition
Utilise under-utilised market power
Overcome the problem of slow growth and profitability in one's own industry
Achieve risk diversification (Portfolio management)
Gain economies of scale and increase income with proportionately less investment
Establish a transnational bridgehead without excessive start-up costs to gain access to a foreign market
Utilise under-utilised resources - human & physical and managerial skills
Displace existing management
Circumvent government regulations
Reap speculative gains attendant upon new security issue or changes in P/E ratio
Create an image of aggressiveness and strategic Opportunism, empire building and to amass vast economic powers of the company
Synergies of various departments of companies
Entering a new market is very easy for companies
Low operating risk
High liquidity & high debt capacity
Replacement of inefficient management
Sharing of complementary resources
Free cash flows
Monopoly power
Tax savings
Undervalued assets
Hubris
Stock market inefficiencies such as myopic market behaviour, fads or accounting tricks
Pecuniary gains such as the breaking of implicit long-run labor contracts, transfer of wealth from bondholders or pecuniary economies
Divergent expectations due to economic disturbances
Speculative motives such as asset plays
Retirement of senior management

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