Expansion and Merger - Research Paper Example

? Expansion and Merger Expansion and Merger A merger takes place when one particular firm assumes all assets and all liabilities of another firm whereby the acquiring firm retains its main identity but the acquired one terminates its existence. This type of acquisition occurs in relevancy to hopes of realizing economic gains hence it has an impact to the market. As a result, government regulation is highly recommendable. When companies consider merging, they must first deal with comprise and arrangement with creditors and company members needed in merger. The laws relating to merger as embodied in sections 391 to 396 of the companies Act, 1956 enable the government to oversee if the companies in need of merger follow procedures and requirements necessary for merger as consideration of the tribunal (Wilson, 2011). Another reason why the government need to regulate market during a merger is because, it is the government’s duty to oversee whether the management of the target merging firm can secure itself form hostile and harsh takeover through a number of various financial as well as legal defenses. The need for government regulation in this case serves as a law that tends to be deferential to defenses for as long as the target the target company does not act primarily to preserve its own position. The government becomes skeptical during a merger since the management of a target company subject for acquisition may negatively affect the society if employees of this company lose their jobs as this increase the percentage of the unemployed in a country. In the United States, the rationale for government intervention is helping in assessing those mergers based on hubris and power without accounting for consequences involved (Burge, 2008). Consequently, the government is now able, with the help of defense laws, to facilitate majority of mergers rendering transactions friendly and negotiable. Hence, preserving and accounting for interests of parties involved by following the rule of law to the latter. Furthermore, the government intervention in the market process remains justified since it ensures that the combined size of the new corporation cannot monopolize power rendering the merger unlawful. Another rationale for government market intervention is that it regulates purchasing power of companies. In this situation, the law offers tender protocols that require whoever is purchasing anything beyond 5 percent of company’s shares to identify him or herself, make particular public disclosures, and announce the reason for the share purchase and any terms and conditions of the tender offer. When companies decide to work on self-expansion, complexities regarding things like capital arise. Subsequently, business expansion or growth is a stage in the life of a company that is fraught with not only opportunities, but also perils. In addition, business expansion carries with it a corresponding increase in financial fortunes for owners and employees as well. When intended companies fail to merger due to unavoidable circumstances and at the same time decide on expanding on its own, it requires additional financing. Getting the extra capital for expansion may prove to be a hard task since small businesses planning to expand encounter drawbacks that make them vulnerable to market strategies that renders small businesses inadequate for advantageous terms available in the capita market. Another complexity associated with capital projects that is likely to rise is unbalanced sales revenue. In some businesses, stakeholders expect to see growth in value of company’s stock. Nevertheless, due to unpredicted downward growth in the trend market share, amount of revenue obtained from sales deteriorate causing the company to face difficulties while in its plans of expansion. Additionally, at times of expansion, companies face more complexities pertaining to capital projects, as the firm requires more room for expansion. Raising extra capital to buy land for firm’s expansion adds on to the number of capital complexities that it has to meet. Expansion as regards capital complexion means that the company must acquire more working machines and deploy more work forces. Expanding company must carry out more labor acquisition process since the firm needs more personnel to for meeting demands associated with new production, new marketing campaigns, new administrative requirements, as well as new record keeping (Carstensen & Farmer, 2008). Acquiring these essential tools of a firm may add up to the amount of capital required in order to reach the firm’s goals. When two firms come together and eventually merge, different groups involved tend to benefit from the decisions made. For instance, when some corporations merge with or acquire another one, they are able to produce more goods and provide more services more efficiently due to increased efforts and facilities. This convergence helps managers make more profits through minimizing in costs of production and increased volume of sales. The growth also works in the best interest of the stakeholders as they are in a position to make more gains compared to their previous volumes. Convergence of firms results to a virtue company size hence increasing efficiency gains. Moreover, collaborating with other firms brings more expertise that helps the firm achieve its objectives based on merit. One of the merging companies’ may have under utilized assets that the other may appropriately use thus benefiting both the stakeholders and managers. When companies merge, this means their size increases thus making it more powerful due to its size of the market that it can control. Speculations that one can draw from a merger with response to implications for the goals of the mergers, as to whether the firm will maximize on profits or on creating more value for the shareholders are several. For example, people might speculate that the company may make profits due to its size since it is easier and faster to make a large volume of produce with increased labor force. Increased volume of production will trigger increased volume of sales that will in turn bring about increased revenue. With enough revenue, the company is in a able place to participate in the stock exchange market where with effective financial assertion might lead to increased profits. In this scenario, the industry’s goals, and objectives proves or implicates the industry’s will to maximize on profits. Macroeconomic concepts help consumers to determine how easy it will be finding work, the much it will cost them purchase goods and services in the market, and/or the much it may cost borrow money. Businesses refer to macroeconomics while determining whether the market will welcome increasing production of products. Government turns to macroeconomics when budgeting spending or expenditure, while creating taxes, deciding on interest rates as well as while making policy decisions (Barro, 2008). Macroeconomic concepts affect the national economy broadly since it has everything to with economic growth, inflation, interest rates, and wage rates. Macroeconomic concepts are applicable to effects of economic growth in that, they revolve around the Gross Domestic Products, which is the driving power of a nation’s economy. Increase in Gross Domestic Product reflects increased economic growth. Therefore, macroeconomists depend on Gross Domestic Product thus; they both rely on each other as a stepping-stone. In order to attain correct economic margins of a country’s economy, macroeconomists must put into consideration the rate of inflation or the rate at which product prices rise. If measurements for nominal Gross Domestic Product seem higher compared to those of real Gross Domestic Product, macroeconomists tend to assume that the prices of commodities have been rising. Therefore, it is macroeconomic concepts that determine the rate of inflation and how it influences the economy of a country. With macroeconomics, it is easier to regulate and keep sight of monetary policies through open market operations. Whenever there need to increase the flow of cash in the market arises, the central bank with the help of macroeconomists, buy government bonds that enables it to inject cash flow immediately. This leads to decreased interest rates. On the other side, fiscal policy regulated by government can increase taxes or lower government spending in favor of conducting fiscal contraction. This in turn lowers real output since less government expenditure declares less disposable income for consumers hence resulting to low wages. In conclusion, the performance of the economy is vital to all nations. Methodologies that small businesses may use in order to attain merging and expansion vary from one expertise point of view to another. However, the driving force behind business growth is the need for corporate cost cutting, employee efficiency and productivity, as well continued strong growth potential. Although analysts use macro economy as the main economic block, it is worth noting that consumers are the main determinants of the direction of a nation’s economy. References Barro, R., (2008). Macroeconomics: a modern approach. California:Cengage Learning. Burge, J., et, al., (2008). Rationale-based software engineering. New York:Springer. Carstensen, P. & Farmer, S., (2008). Competition policy and merger analysis in deregulated and newly competitive industries. Cheltenham:Edward Elgar Publishing. Wilson, J., et. al., (2011). American Government: Institutions & Policies. California:Cengage Learning. Read More