Question

What are the strategic justifications for your specific firm to undertake a merger (either as acquirer or target) within the economic context of the simulation? That is, what are the pros for your firm to either acquire or be acquired by another firm?

Answer 1

The strategic justifications are:

a) Diversification of the business: The best way to enter into a new area of business is by acquiring or merging qith a company that already exists in that area.

b) Increasing capacity: If a company is planning to expand its business activities then it may plan to acquire or merge with another company.

c) Bigger Market share: When two big business organizations come together then a large part of the market share will be owned by them. This may also lead to making the company the market leader.

d) Reduction of costs: When two companies come together then they will incur less costs as compared to when they were carrying out their functions individually.

The pros of being acquired is when the financial condition of the firm is bad then the acquiring will lead to improvement in financial position. The cons is that the firm will lose its power and will have to share it with the acquirer.

The pros of acquiring is that the firm can expand its business activities while the cons is that they will have to shell out a lot of money.