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Mergers and Acquisitions History - Essay Example

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Historically, mergers and acquisitions have been utilized in the hopes of augmenting business operations and increasing the breadth and scope of a company's financial portfolio. Furthermore, history has also illustrated the disadvantages and corruption that can accompany such activity…
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Download file to see previous pages This paper seeks to explore mergers and acquisitions as well as their inherent benefits and drawbacks. These business practices will also be examined in the context of foreign interaction.
There are some sensible reasons for executing mergers and acquisitions (M&As). The most obvious reason is profitability. "Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A can represent the highlight of a whole career" (, 2007). Another sensible reason is the gain of power by way of absorption. Absorption involves the securing of a competitor's resources which, in turn, increases the absorbing company's clout and influence. The final reason, for purposes of this analysis, is for companies to gain more appeal in the international market. If foreign investors can be persuaded to contribute to a particular company, that company's economic success can be significantly enhanced.
There are also some dubious reasons that come with the M&A game. One major obstacle is the time factor. The process of securing M&As can take considerable time to complete. Negotiations may fall through and/or companies may not be willing to engage in tedious legal wrangling. Another dubious reason is the inadequate protection from the law. Depending upon the state in which the companies operate, the law may or may not fully protect either one in terms of unfair business practices or hostile takeovers.
Cash transactions are one way to effectuate a merger or acquisition. In these types of transactions, a company can seize some or all of another company's assets. This can be beneficial in that tangible property can be assimilated into a company's operation. However, "a cash purchase will be a taxable merger, whereas a stock exchange will not be taxable. In a taxable merger, there are capital gains effects and asset write-up effects to consider" (, 2007).
Stock transactions are another way to effectuate a merger or acquisition. In these types of transactions, the interest of shareholders comes in to play. In stock transactions, shareholders still retain their interest; it just gets transferred to the absorbing company. One glowing, positive benefit of these transactions is the tax consideration. "Certain exchanges of stock are considered tax-free reorganizations, which permit the owners of one company to exchange their shares for the stock of the acquirer without paying taxes"
(, 2007). The major disadvantage of this arrangement is that there is usually no transfer of tangible assets which, in turn, will not yield a transfer of title.
When merging with or acquiring an organization in another country, there are some risks that must be strongly considered. Arguably, the most significant risk encompasses this consideration: "A short history of precedent M&A activity and minimal financial disclosure pose various valuation issues; this is often compounded by unrealistic valuation expectations on the part of vendors" (, 2007). Companies that are interested in immersing themselves in foreign markets must thoroughly research economic trends and general business practices. Another serious risk is the ...Download file to see next pagesRead More
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