Q:

Why do companies merge?

A:

Quick Answer

Specific motivations for a business merger are varied and may include increased growth or market share, increased diversification, market synergy or economies of scale. Mergers between two companies are agreed upon to maximize shareholder wealth through the creation of a singular business formation.

Continue Reading

Full Answer

The general benefit of a merger is that the combination of two business entities bolsters performance through improved efficiency and decreased costs. Effective mergers are initiated between companies with complementary strengths and weaknesses.

Companies may opt to engage in a merger to diversify their business and reduce exposure to a specific industry. Businesses that merge for diversification purposes are typically in unrelated markets and often result in the larger business absorbing the smaller business.

The prospect of increasing market share is another reason why companies engage in mergers. The acquiring company in a merger increases its market share without increasing its supply chain or workforce. These horizontal mergers allow the acquiring company to purchase another company's product and consumer base for a premium. In exchange for the cost of acquisition, the merger increases the acquiring company's market share while eliminating its future competition.

Companies may also engage in vertical mergers to increase their supply-chain pricing power. This type of merger occurs when a business purchases one of its distributors or suppliers. Under this merger, the acquiring company reduces its costs by eliminating the margins previously charged by the supplier or reducing the transportation costs charged by the distributor.

Learn more about Corporations

Related Questions

  • Q:

    What are the advantages of multinational companies?

    A:

    The advantages of multinational companies include bringing jobs to new employees, stimulating local economies and introducing valuable technologies. Multinational corporations benefit their home countries and territories overseas by contributing to tax bases in all locations and enabling currency flow and exchange. These businesses often reduce the costs of producing goods and make products cheaper for consumers.

    Full Answer >
    Filed Under:
  • Q:

    What is Starbucks' market share globally and in the United States?

    A:

    Starbucks has an approximate 33 percent share of the U.S. market and a 1 percent share of the global market, according to SeekingAlpha.com. The analyst group IBISWorld confirms the national figure, putting the U.S. percent share at 32.6.

    Full Answer >
    Filed Under:
  • Q:

    Why do companies become multinationals?

    A:

    A corporation may pursue multinational status in order to increase market share, reduce production costs through the acquisition of cheap labor, avoid trade barriers and reduce its tax liability. A multinational entity is a company that maintains its headquarters in one country, but operates assembly or production facilities in other nations.

    Full Answer >
    Filed Under:
  • Q:

    Who are Nike's competitors?

    A:

    In terms of market share, Nike's biggest competitors are Adidas and Under Armour. Other competitors include Puma, Skechers, Anta and Li Ning. Nike is the global market leader, but it faces increasing competition in Europe and China.

    Full Answer >
    Filed Under:

Explore