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Mergers& Acquisitions - Essay Example

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The merging companies share the securities depending on the terms agreed on during the contract. The main reasons for merging are profit maximization, diversification, and…
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Mergers& Acquisitions

Download file to see previous pages... The US airline industry had previously been dominated by nine companies that created a stiff competition in the market. However, the move to merge the American airlines and the US airways has altered the situation. The main reason that led to the merger is the desire both companies to gain competitive advantage over their competitors (Thomas, 2013). The size of a company determines their convincing power. Large companies have a likelihood of attracting customers and shareholders, and hence the company will be more competitive. The two companies also came together in order to heighten their sales. With the many numbers of competitors, the companies hoped that coming together would increase their sales. The two companies intended to expand rapidly since more resources, and labor had been brought together (Daily Mail Reporter, 2013). The merger of the two airlines will ensure that the company will control approximately 20% of the market share since 80% of the market share is controlled by the four large airlines (Reed, 2014).
Merging the two companies reduced the risks and hence the new company is in a position to diversify its operations (Reed, 2014). The airline industry has a lot of risks, and the managers decided to come together in order to spread and cushion the risk. The merger provided a large pool of finances which would allow the two companies increase their economies of scale and thereby maximize their profits (Reed, 2014). The elected overall managing director stated out that their move was not only to fight competition but also to meet the large financial demands in the industry. He also said that the move would increase their networks, and their customers would have a variety of choices in terms of traveling time.
The merger brought about both positive and negative results to the two companies. The new company (American Airlines) gained an advantage since its costs ...Download file to see next pagesRead More
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