Mergers and acquisitions: DaymlerChrysler case - Assignment Example

On most occasions, acquisition occurs when a larger firm purchases a smaller business organization. In some occasions, the acquired company will retain its name, and some aspects of managerial control. However, there are other types of acquisitions that the company acquired does not retain any form of control and ownership of its operations. Mergers on the other hand refer to an agreement between two or more business organizations to conduct their operations together (Bidault, 2012). For a merger and an acquisition to be successful, the organizations concerned must factor in both financial and cultural aspects of the organizations in question.

Failure to do so will result to the failure of the acquisition or the merger. There are different methodologies that organizations can use to acquire a controlling position in an organization, and these methods are (DePamphilis, 2012); 1. The acquiring entity buys all the shares of the organization, or a larger percentage of its shares. In this type of transaction, the business entity is acquired as a going concern. The organization that has acquired it therefore takes over all the liabilities of the entity acquired, and all the business risks that the organization will face. 2. The second method involves the purchase of all the assets of the organization.

This type of acquisition is termed as the purchase of an asset by the buying company. This type of acquisition is advantageous because it guides against foreseeable liabilities such as the benefits of employees that arose because of employment termination, or legal litigations that arise out of the use of defective products. However, a larger percentage of mergers and acquisitions are not always successful, and this is because of the following reasons (Stevis, 2009). 1. Poor documentation processes makes it difficult for the acquiring firm to have adequate knowledge concerning the operations of the acquired firm. 2. Differences in cultural values between the companies involved in the acquisition. 3. It is difficult to integrate the companies under consideration, especially if there are differences in their sizes, and structures. 4. It is difficult to manage the capabilities of employees, and technologies in use by these firms because of the difficulties and challenges that arise in implementing the acquisition.

Despite these difficulties, different firms and organizations look for opportunities to merge or acquire a business entity. The reasons they advocate for this is that mergers and acquisitions help to improve the financial performance of a business entity (Baums, 1998). This is because the organizations would enjoy the economies of scale, and the advantages associated with the economies of scope. Economies of scale refer to the ability of the business organization to reduce the costs of its operations for purposes of increasing its profitability.

This is made possible because of the size of the organization. Economies of scope are the efficiency in which an organization manages to have in the distribution and marketing of their products. This is possible because of the larger nature of the organization. An organization would also claim tax relief, in case it acquired a loss making entity, and this might improve its financial capability. This paper analyzes the strategy of merger