Merger between Boeing/McDonnell Douglas - Research Paper Example

Topic: Merger between Boeing/McDonnell Douglas al Affiliation: Merger between Boeing/McDonnell Douglas Merger andacquisition serve strategic objectives. A merger takes place when two organizations of about equal size combine to form one enterprise (David, 2005, p. 213). On the other hand, acquisition occurs when a large corporation, commonly known as acquirer, acquires a smaller corporation, or vice versa (David, 2005, p. 213). Merger and acquisition strategy is pursued to ensure the attainment of certain advantages.

First, revenues will be higher for merged corporations in comparison with the revenues earned in their separate existence. Second, comparatively, merged companies observe a significant decline in overall expenses. Additionally, operational efficiency and an increase in market share are also the motives that can push company towards a merger and acquisition strategy. The aerospace industry is incomplete without the contribution of Boeing. Boeing is the world’s leading aerospace company. It manufactures military aircrafts and commercial jetliners besides providing major services to NASA; Boeing designs and manufactures satellites, rotorcraft, defense and electronic systems, missiles and communication systems.

Boeing represents a merger between McDonnell Douglas and Boeing. McDonnell Douglas merged into Boeing on July 31, 1997(Boeing, web). The entire financial value of the merger was $16.3 billion. After the announcement of the merger, each shareholder of McDonnell Douglas was given 1.3 shares of Boeing common stock for each share of McDonnell Douglas common stock. In this way, this landmark merger in the aerospace industry launched its journey. Perceived motives Boeing came into existence in 1916 and was founded by William E. Boeing. Soon after its existence, it decided to provide its services in the ratio of 80% to 20% to the commercial market and defense outlay respectively.

Boeing mostly focused and supplied airplanes for WW-II. However, after the end of the WW-II, a significant decline in defense spending and a considerable increase in the commercial market significantly served its strategic objectives because of the above mentioned service ratio. On the other hand, McDonnell Douglas was the merger of two separate companies-McDonnell Aircraft Corporation and Douglas Aircraft Company. McDonnell Aircraft Corporation was founded by James S. McDonnell, Jr., in the year of 1939.

And, Donald Wills Douglas founded, in 1920, the Douglas Aircraft Company; both merged into the McDonnell Douglas Company in 1967. McDonnell Douglas mostly concentrated on the defense side; it generated about two-thirds of its revenue from that side, putting a heavy reliance on the defense sale increased its financial problems after the end of the WW-II; additionally, the announcement of significant reduction of defense spending threatened the existence of this company. Simultaneously, globally commercial air travel industry was experiencing a significant increase, and unfortunately McDonnell Douglas was not in a position to avail this opportunity.

By the end of 1996, on the commercial side, Boeing was constantly receiving new orders and its backlog was significantly increasing; on the other hand, McDonnell Douglas was moving in the opposite direction, losing market share on both military and commercial sides. After analyzing the market and their strengths, both decided to merge into a single company. A rough sketch was made between the CEO of Boeing, Phil Condit, and the CEO of McDonnell Douglas, Harry Stone cipher. As a result, this merger was officially announced on the date of July 31, 1996.

References 1. David, F., R., (2005), ‘Strategic Management: Concepts and Cases’, Delhi, Pearson. pp. 213-214. 2. ‘McDonnell Douglas merged into Boeing’. [Available at: http://www.boeing.com/news/releases/1997/news_release_970731c.html ] [Accessed: March 25, 2011].