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Issues of Merger and Acquisition with Special Reference to International Practices. Madhav Prasad Bhatta.
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Madhav Prasad Bhatta
Mergers and Acquisitions (M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can add finance or help a growing company in a given industry grow rapidly without having to create another business entity.
A Merger or Acquisition (M or A) is a combination of two companies where one corporation is completely absorbed by another corporation.
Consolidation is not a merger. Here two companies loose their separate identities and unite to form a completely new corporation.
M&A means the change for a business and the underlying principle is 2+2=5.
Acquisition usually requires to a purchase of a smaller firm by a larger one and the process of acquisition is also very complex with many dimensions influencing its outcome (tax and regulatory implications).
Managerial motives include status, power, empire building, remuneration, hubris etc.
Conglomerate mergers encompasses all other acquisitions. Two firms in completely different industries merge. For example a gas pipeline company merging with a high technology company or the merger between an automobile manufacturer and a real estate company.
Keep both names and use them together as in the case of Price water house coopers or PwC.
The great merger movement was predominantly US business phenomenon that happened from 1895-1905. A great wave of merger swept through the manufacturing sector during this period. More than1800 of such firms were disappeared into consolidations.
Dupont, US steel, and General electric were the prominent companies to merge during the Great Merger movement. Due to technological advances of their products, patents and brand recognition they are able to keep their dominance in their respective sector even today.
Reliance Industries in March 2009 approved a scheme of amalgamation of its subsidiary Reliance Petroleum with the parent company. The all-share merger deal between the two Mukesh Ambani group firms was valued at about Rs. 8,500 crore ($1.68 billion). This Acquisitions transaction till date.
Since 1991 the Bank of America, the largest banking company in the country today, materialized out of 18 large mergers, the modern Wells Fargo was forged in 12, J P Morgan Chase in 7 and Citigroup in three including the massive combination of Citicorp and Travelers.
- Poor strategic fit, cultural and social differences (out of people problem), inadequate and incomplete due diligence (which is the watch dog for M&A process), poorly managed integration (which requires high level quality management for planning and design).