Evidence, argumants and evaluation on whether mergres and acquisitions incraese shareholders wealth - Essay Example

Evidence, Arguments and Evaluation on Whether Mergers and acquisitions Increase Shareholders Wealth al Affiliation: Arguments and Evidence on Whether Mergers and acquisitions Increase Shareholders’ WealthA merger is formed when two business organizations come together to form one entity (Straub 2007). An acquisition on the other hand an acquisition involves the purchase of one organization by another (King, Dalton, Daily, and Covin (2004). Often, the main aim of mergers and acquisition is the maximization of the wealth of shareholders.

However, mergers and acquisition can lower shareholders’ wealth in some cases. Mergers and acquisitions have the persistence to act a key role in molding business activities. Mergers and acquisition are prevalent in many parts of the world. The following sections of the paper discuss the effects of Mergers and acquisitions on the shareholders’ wealth.Wide Market presenceMergers and acquisition have led to the increase of shareholders market presence in certain industries according to Brigham and Houston (2009).

This has also led to effective sales and marketing associations by the merging companies. As a result, this leads to increased wealth of the shareholders. Mergers and acquisitions often lead to greater market presence of the companies involved (Fleuriet 2008). Higher market shares that result from mergers and acquisitions often lead to increased purchasing ability and control over suppliers as suggested by Bruner (2004). When an organization buys a product in higher volumes than previously, the purchase cost becomes lower making the company become more price competitive.

This has the potential of attracting greater sales and, therefore, higher value to shareholders. Mergers ad acquisitions may lead to improvements in company operations especially in the case of manufacturing companies as suggested by DePamphilis (2011). Therefore by increasing facilities through mergers and acquisitions, the company raises its capacity to manufacture more products or higher quality products. The company as well has its credibility increased which positively increases the shareholders wealth (Maddiganand and Zaima 1985).

Mergers and acquisition often lead to symbiotic relationships between the two companies. As a result, the two companies tend to support one another, which in return helps the shareholders realize greater value from their investments. Mergers and acquisitions combine the operations of the two companies leading to higher sales capable of supporting their concurrent higher budgets hence raising the wealth of the shareholders (Cartwright and Schoenberg 2006).In some cases, mergers and acquisitions may not add value to shareholders’ wealth.

This happens for example when management of one company overpays for another company due to overconfidence (King, Slotegraaf and Kesner 2008; Harwood 2006). Also, when a company seeks to diversify which in effect may not necessarily add to shareholders wealth. In some cases, managers may go for a merger or acquisition to increase the profitability of the entity without increasing the per share profit of the shareholders (Harwood 2006). The Arguments used by Various Stakeholders, for and Against the Takeover of Cadbury By Kraft In 2010The Cadbury board was in favor of the acquisition arguing that it would generate a global confectionary leader n Kraft (BBC 2010).

It was the board’s belief that the acquisition will present great value to Cadbury’s shareholders. On the other hand employees of Cadbury argue that there could be job losses due to the new arrangement as the new management may seek to cut costs by retrenching some employees. This is so considering that Kraft management had not given any assurance regarding the future of 4, 500 (or 6000) Cadbury’s employees in the UK as Reuters (2010).The acquisition saw the Cadbury shareholders receiving 10 pence per share held in the company.

This was an increase in the value of the shares previously held by the shareholders. However, some shareholders perceive this as short-term gain which may not be of great value in the long run. Kraft management sees the acquisition as cause for joy to the employees of both companies as the act will mean that Cadbury’s factory in Somerdale will not be closed thus saving about 500 jobs. The management of Kraft also sees the move as favorable since it would lead to the growth of the business for the benefit of shareholders, consumers, and workers.

Shareholders of Kraft see the move as one in the positive direction believing that their investments will be of greater value in the long run.Some suppliers find the acquisition of Cadbury a welcome move considering that the move will prevent the closure of one of Cadbury’s plant which would ultimately mean reduced business for suppliers. On the other hand, customers find the move welcome as long as Kraft maintains the quality that Cadbury offered. Customers also hope that the merger will see Kraft offer products in new markets where Cadbury already established.

Reference ListBBC. (2010) Cadbury agrees Kraft takeover bid. Accessed 15 March, 2012 http://news.bbc.co.uk/2/hi/8467007.stm Brigham, E. & Houston,J. (2009) Fundamentals of Financial Management (Book Only). Auckland: Cengage Learning.Bruner,R. (2004). Applied mergers and acquisitions. London: John Wiley and SonsCartwright, S., and Schoenberg, R. (2006). "Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities". British Journal of Management 17 (S1): S1–S5.

DePamphilis,D. (2011). Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions. Massachusetts: Academic PressFleuriet, M. (2008). Investment Banking explained: An insiders guide to the industry. New York, NY: McGraw Hill. Harwood, I. (2006). "Confidentiality constraints within mergers and acquisitions: gaining insights through a bubble metaphor". British Journal of Management 17 (4): 347–359.King, D. R.; Slotegraaf, R.; Kesner, I. (2008). "Performance implications of firm resource interactions in the acquisition of R&D-intensive firms".

Organization Science 19 (2): 327–340. King, D., Dalton, D., Daily, C. and Covin, J. (2004). "Meta-analyses of Post-acquisition Performance: Indications of Unidentified Moderators". Strategic Management Journal 25 (2): 187–200.Maddigan, R., and Zaima, J. (1985). "The Profitability of Vertical Integration". Managerial and Decision Economics 6 (3): 178–179. Reuters (2010) Cadbury shareholders approve Kraft takeover. Accessed 15 March, 2012 http://www.reuters.com/article/2010/02/02/us-cadbury-kraft-idUSTRE61124D20100202Straub, T. (2007). Reasons for frequent failure in Mergers and Acquisitions: A comprehensive analysis.

Wiesbaden: Deutscher Universitäts-Verlag (DUV).