Question

List several reasons (and give real life examples for each) a company may choose external growth by a merger over internal growth

Answer 1

Reasons why a company may choose external growth over internal growth:

Economies of scale, tax considerations & more rapid growth.

• Economies of scale: economies of scale are nothing but cost advantages enjoyed by a company as a result of company’s production becoming efficient. The example can be Nissan that merged with Mitsubishi. The merger happened as Nissan can reduce potential duplication cost by setting up dealership across the area. Mitsubishi has a strong presence in Thailand where Nissan has weak market presence.
• Tax considerations: i couldn’t find any example for this.
• Rapid growth: Big oil got even bigger in 1999, when Exxon and Mobil signed an $81 billion agreement to merge and form ExxonMobil. Not only did Exxon Mobil become the largest company in the world, it reunited its 19th Century former selves — John D. Rockefeller’s Standard Oil Company of New Jersey (Exxon) and Standard Oil Company of New York (Mobil). The merger was so big, in fact, that the FTC required a massive restructuring of many of Exxon and Mobil’s gas stations, in order to avoid outright monopolization (despite the FTC’s 4-0 approval of the merger).