Mergers and Cost of Capital at Delta Airlines - Dissertation Example

Download file to see previous pages This resulted in a drop in M & As worldwide although the volume still remains at a high level (Stahl & Voigt, 2003, p.2). The terms mergers and acquisitions involve a large number of transactions. Mergers can be of different forms one firm can take over a different firm resulting in both firms ceasing to exist individually to create a new firm. The principal purposes of the merger of two companies are to strengthen their hold in the market and also to earn a competitive advantage in the industry. There are five common types of mergers. The first type is a conglomerate merger which happens between two firms that have completely different types of business activities.

This means the firms neither have common products or services that they sell nor do they have common market parameters. One example of this kind of merger is the merger between the Walt Disney Company and the American Broadcasting Company. The second type of merger is a horizontal merger in which two firms dealing with similar products and services are involved. This type of merger is done to reduce manufacturing costs and acquire a larger share of the market. For instance, a merger between Coca-Cola and Pepsi will be a horizontal merger and will allow both companies to acquire a large share of the soft drink market. The third type of merger is a market extension merger.

This happens between two firms dealing with similar products but in different markets. The goal is to capture a greater portion of the market. For instance, the acquisition of Eagle Bancshares Inc by RBC Centura has allowed RBC to extend its operations in the North American market. The fourth kind of merger is a vertical merger which occurs between two firms that manufacture different types of products, but the products are manufactured for the purpose of common finished products. A vertical merger is done between firms in different stages of the industry’s supply chain to increase the efficiency of their production process. For instance, a vertical merger can take place between an automobile manufacturing firm and its supplier firm. The fifth and final kind of merger is a production extension merger which takes place between firms manufacturing associated products in the same market.

One example is the acquisition of Mobilink Telecom Inc. by Broadcom. Here it is expected that the products of the two firms will complement each other (5 types of Company Mergers, 2013; Vadapalli, 2007, p.1). The processes involved in mergers and acquisitions are complicated and need a complex web of preparations. A Series of negotiations are needed along with due diligence which means the buyer company needs to be aware of any obstacles that may arise because of the merger. Activities also include the sale and purchase of assets and liabilities of the companies involved. Financial and legal complications too needed to be sorted out. ...Download file to see next pages Read More