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Explains how Corporate takeover is influenced by corporate environment - Essay Example

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Merger and acquisitions Introduction Merger in general terms are referred to as an amalgamation of companies. The integration is strictly corporate with the existence of the merger company as a legal entity. In a takeover, mainly there is change in the control power from one group of shareholders to another group…
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Explains how Corporate takeover is influenced by corporate environment
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Download file to see previous pages Corporate greed has been studied to be an important cause for merger and acquisitions. Since the prime objective of every firm is to maximize the profit, the corporations in greed want to acquire other competing firms. Thus through merger market competition can be eliminated. Moreover it is generally assumed that the larger firms are in a position of enjoying cost efficiency and hence economies of scale. Thus merger can be the result of the firm’s desire of enjoying economies of scale through the acquisition of other small firms of the market. The company, which is being taken over by the parent company through merger, is known as the ‘subsidiary company’. Accomplishment of the corporate amalgamations can be done in three different ways, by consolidation, by acquisition or by pooling of interests. Pooling of interest is often called a tax-free merger and is generally accomplished by swap of common stocks at specified ratios. Acquisition on the other hand consists of the purchase of assets of one company by the other at a given price and the shareholders of the targeted company need to surrender their stocks. For example the merger of the Wrigley and Mars Company had been finalized in a deal of 23 billion dollars in which Mars announced to acquire Wrigley after being approved by both the companies. The shareholders of Wrigley thus need to surrender their stocks receiving 80 dollars for each of their shares. Thus the targeted company remained to a ‘stand alone separate subsidiary of Mars’. Consolidation is another process of corporate combinations. This process involves the formation of a separate entity by dissolving both the companies. The new stocks of the consolidated firms are issued to the existing shareholders of both the individual companies. (Hoskisson, Hitt and Ireland, 102-103; Sorkin; Mullins) Takeovers can influence corporate environment if the takeover is hostile. There are generally four types of takeovers. These are strategic, defensive, growth and financial. In a strategic takeover, the acquiring firm tries to target the much-developed product of the firm that is to be acquired. This product is in the form of either services or any intellectual property. In a defensive takeover, the acquiring firm tries to sell the assets of the acquired firm in the market after buying them from the targeted firm. In a growth takeover strategy, the acquiring firm targets to acquire such a firm that has high growth potential. The acquiring firm markets the products of the targeted firm by utilizing own sales and distribution channels. In a financial takeover strategy, the acquiring firm is generally interested in a financially sound firm. Sometimes acquiring firms can take interest in firms that are financially weak. This is done in order to offset the tax liability. There can be various reasons for which a merger takes place. Firms acquire other firms to increase their market share. A firm gains larger market share when it gives tough competition to other firms in terms of lower production costs as well as higher sales costs. Market power mainly depends on the size of the firm and the market share it covers. The results of these acquisitions are big firms, which in turn create economies of scales. Sometimes acquisitions are means to raise funds. (Hoskisson, Hitt and Ireland, pp 245) Culture Differences Organizational values are noticed through emotional ...Download file to see next pagesRead More
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