Mergers and Acquisitions are Process of:
Integration of Two or More Firms. Merger process refers to firms pooling together their resources, strength and synergies to create a competitive advantage. Acquisition refers to gaining control of one firm by another. Mergers and acquisitions have become a world wide phenomenon particularly in last twenty years.
A new phase of merger stands after 1994, when globalization process has taken a concrete shape, and firm root. Merger process is a pointer to the changing process of global environment of business.
Merger and acquisitions are done with a view to increasing the market power and market share. This process helps to reduce cost of production, reap economies of scale, offer products at a lower price than competitors to retain steady market share. Firms go for vertical, horizontal, conglomerate mergers.
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Vertical Mergers:
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Two firms in the same industry at different stages of value chain and production process merge together, like Coca-Cola taking ‘many bottling plants in our country. Tata Tea acquiring tea gardens of Assam.
Horizontal Mergers:
When two competing firms merge in the same business activity, it is called horizontal mergers. The horizontal merger generates greater economies of scale. Tomco merging with HLL is a case of horizontal merger. The horizontal merger ensures more market share, economies of scale. Sometimes horizontal merger create monopoly in the market.
Being afraid of creation of monopoly, the merger between G.E. and Honey Well were not approved by European Union. The EU’s reasoning was the merger would reduce competition in the aerospace industry and would result in higher prices to be paid by airlines customer.
Conglomerate Mergers:
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If two firms join together with unrelated business interest this is called conglomerate mergers. Effect and benefit of Merger.
(i) Mergers prevent entry.
(ii) Mergers help in economies of scale can take help of sales and distribution network.
(iii) M & As help to create new capabilities, which may help in introduction of new products, nurture product diversification, it may take advantage of marking the new entity a multiproduct firm, after the M & A process.
Merger & Industrial Life Cycle:
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Experts have related merger process with life cycle stages. In the introduction stage a new firm may merge with a bigger one for better management. The new entity may get new enthusiasm and cross- cultural tie up and act with renewed vigour in new environment.
For better growth prospects and profit possibilities companies may think of mergers at the growth stage. Such is the case of HDFC bank and Times bank merger. When both the firms are having a reputation due to low cost and low price, satisfactory level of consumer network, to reap more advantage in respect of cost reduction and research facilities, more efficient production and distribution network they merge together.
These mergers take place at the maturity stage. There are cases of mergers even in decline stage. At this stage horizontal mergers are resorted to for survival and vertical mergers take place for increase or share of profit margins for augmenting efficiency and to have a new lease of life.
Cross Border Merger: Mergers and acquisition also takes place in global perspectives. Companies do it for enhancement of global presence or entering a new market. Many global mergers have taken place in telecom and auto industries. The mega merger between Germany’s Daimler-Benz and U.S. based Chrysler Corporation are examples of automobile merger.
Merger & Acquisitions in Indian Perspective:
India after 1991 has witnessed lot of merger events, for growth, market share; increase of competence, entering in Indian market many foreign companies had merger programmes. For better consolidation there has been merger in financial sector also. HLL has entered in many new sectors through series of mergers
1993 – Acquisition of Kothari General Foods, Mergers of Doom Dooma Tea, Brook Bond and Lipton, Kissan products.
1994 – Acquisition of Tata Oil Mills, Kwality Ice cream 1998 – Acquisition of Kwality Forzen Foods.
2000 – Acquisition of PSU Modern Foods.
More Mergers have resulted in various sectors in last few years, even in the public sector. Foreign MNCs have taken over many Indian Companies and working with their Indian partners. But in the process Indian research process and indigenous technological development has taken a back seat.