Merger

Dev Bhargava db9101@stud.asb.dk SMBA Industrial Economics IA-5 IA 5.1 (max 2 page) What are the major forces behind mergers from an Industrial Economics point of view. Carefully distinguish the perspectives of the various players involved (e.g. the merging firms). Briefly discus the effects and possible objections that other players in the industry, policy makers or the public may fear? Mergers :- When two (or more companies)combine to form a separate business entity, it is called a merger. In a sense, it is a legalized form of collusion. The major forces behind mergers from the perspective of the merging firms involved are: 1. Reduction of Cost -Due to the reorganization of the firm structure, there should be a more efficient use of assets , leading to a more efficient post merger firm thereby reducing cost 2. Market performance- A more efficient post merger firm will have better productivity and a better market performance(for both homogenous and heterogeneous product)/market share(for a homogenous product) in comparison to the pre merger firms. 3. Financial stability- An inefficient company would want to merge with a more profitable and efficient company in an effort to improve its financial stability. For example, Jaguar and Land Rover(JLR) was struggling financially and on the verge of dying out. So it decided to merge with Tata motors as Tata had shown an interest (horizontal merger). This deal gave JLR a new lease of life and has now helped it to improve its market performance. 4. Diversification- A firm that is looking to diversify its business interest would want to merge with a company involved in the production of that good (heterogeneous product merger/vertical merger) 5. Strengthening – A merger can help the firm in integrating its product and thereby improve product performance. For eg- Ebay and paypal are different products but a combination of the two has improved the final product, making it better for the consumers and helping Ebay and PayPal to...