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If managers are rational, mergers should always lead to an increase in shareholder value. Discuss this statement in view of the relevant analysis of mergers and acquisitions - Essay Example

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The business organisation that takes over the liabilities and assets of another organisation retains its identity. On the other hand, the…
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If managers are rational, mergers should always lead to an increase in shareholder value. Discuss this statement in view of the relevant analysis of mergers and acquisitions
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If managers are rational, mergers should always lead to an increase in shareholder value. Discuss this statement in view of the relevant analysis of mergers and acquisitions

Download file to see previous pages... Scholars denote that a merger is just one example of an acquisition, and there are other methods that an organisation can acquire another organization.
These methods include purchasing of a company’ shares or even making an initiative to purchase all the outstanding stocks of the business targeted for acquisition. It is therefore important to understand that the main purpose of acquisitions and mergers is for the companies involved to gain an economic advantage (Custódio, 2013). For any transaction involving mergers and acquisitions to be justified, the net worth of the two organizations when combined must be more than when the two organizations did not merge, or were not together. This paper will identify the reasons as to why so many mergers and acquisitions usually fail, despite the advantages that these mergers and acquisition bring about.
Some of the advantages of an acquisition or merger include elimination of inefficiency, acquiring some tax advantages, achieving the benefits of economies of scale, and acquisition of complementary resources that can help an organisation to increase its market share (DePamphilis, 2010). Other major reasons for acquisitions and mergers include the ability to obtain proprietary rights to services and products, increasing the market share of an organisation through acquisition of the competitors of an organisation, and using the distributional channels of the acquired company to penetrate new markets, and geographic locations. All these advantages of mergers and acquisition must always be reflected in the growth of organizations shares, hence increasing the share value of an organization (Van Horne and Wachowicz, 2009). However, this is not always the case on most of the mergers that occur. This is because an acquisition and a merger is always a very complex procedure, and on most occasions, it is difficult for the managers to accurately evaluate the transactions, the benefits, the costs, and the ...Download file to see next pagesRead More
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