Contributed by Shikha Bhat (20mmb053)

Mergers:

Merger is the combination of two firms into one, in which the acquiring company
assumes all the assets and all the liabilities of the other.

For example: In 2013, the companies like Tech Mahindra and Mahindra Satyam
merged and finally concludes “Tech Mahindra”.

Why do companies merge?

 Need access to company’s distribution channel.

 Wants to increase customer base or market share.
 Brand name or good will.
 Many companies in Silicon Valley are today acquiring start-ups rather than
acquiring and training new talent.
 Acquiring company gets new technology, resources, manpower, patents, designs,
etc.

Economic of Scale:

 It can be defined as the opportunity to spread fixed cost across a larger volume of
output.
 It can be seen in the bulk orders.

Merger Waves:

 It is said that merger comes in waves.

 The first wave of intense merger activity occurred at the turn of the twentieth
century.
 Then the second wave came in the 1920s.
 There was a further boom from 1967 to 1969 and then again in the 1980s and
1990s.
 With each wave, the stock market prices were touching the sky, though in each
case there were substantial differences in the types of companies that merged and
how they went about it.
 During the 1980s merger boom, only the very largest companies were immune
from attack from a rival management team.
 For example, in 1985 Pantry Pride, a small supermarket chain recently emerged
from bankruptcy, made a bid for the cosmetics company Revlon. Revlon’s assets
were more than five times those of Pantry Pride. The bid was possible (and
eventually successful) because of the ability of Pantry Pride to finance the
takeover by borrowing $2.1 billion. The growth of leveraged buyouts during the
1980s depended on the development of a junk bond market that allowed bidders
to place low-grade bonds rapidly and in high volume.
 After this, the was a temporary decline in merger activity.
 But by the mid 1990’s, stock markets and mergers were booming again.