Essay: Mergers and acquisitions

As an outcome of globalisation of businesses all over the world, the rivalry between the small and the large companies as been amplified. The mergers and acquisitions is one of the salient activity in the present business world which has been adopted repeatedly by organisations for attaining the desired targets like beating the market, growth and to keep their business going. Characteristics like the different situation under which mergers takes place or the type of merger and other situation specific factors are those on which the way the objectives would be realised through Mergers and Acquisitons.
Mergers and acquisitions are used synonymously, but in order to determine whether it is a merger or an acquisiton, there are certain aspects or point of differences that will help us to do so.
Acquistions are interior constituent of corporate scheme. We can say so due to the recognition of Mergers and Acquisition. Synergy realisation is the most stated motive in Acquisition (Gaughan 2002).
Acquisitions, help firms to procure a pre-existing perception base of proven value (Empson 2001).
The merger of Arcelor-Mittal is considered to help incorporate the shifting of prices in the steel industry (The Economic Times, 2006). An addtional characteristic of the merger is that it will develop the consolidation in world steel industry and therefore, it would help the producers of steel to retain the performance constancy through higher efficiencies (Anon., 2008)
Teerikangas and Very (2006) condemned the actuality that loose definitions of Mergers and Acquisitions have resulted in an ill-defined focus in M&A studies. Further Nummela (2005) questions that there is an articulate variation amidst the two concepts.
Firms make use of Mergers and acquisitions to increase their success and growth, seize and also expand, access assets which are expensive to follow, also to decrease the competition, yet majority of the mergers and acquisitions fail to meet their objective (Haleblian, Devers, McNamara, Carpenter, & Davison, 2009).
The operation of the firms should be measured not only in terms of financial aspects but also taking into consideration the non-financial aspects. Most of the studies have a sensation that this may be the cause for them to reckon the failure of mergers. The success or failure is conditional on the purpose for which mergers and acquisitions are done. It would be regarded as a failure if it is impossibe to achieve the target that are set(Rosenweig, 2006). Success is the degree of goal achievement (Bierich, 1988 cited from Brouthers, Hastenburg and Ven, 1998). Nonetheless there are opposed views. A merger is fruitful if it inflates the total current wealth of the owners of acquiring firm with other things being constant(Kumar and Rajib, 2007).
Healy et al. (1992) considered the industry ratios (operating cashflows/total assets) to be the touchstone of effective mergers. On the other hand De Pamphilis(2009) described failure as shutting down of business and sale of business, incapability to meet or exceed financial objectives, non-achievement of strategic objectives. When target firms are liquidity constrained anterior to merger,chances of gain from merger will be stupendous (Kruse et al., 2002). Cost cutting is a greater driver of acquisition success (Kaplan, 1992) as recommended by large sample studies and clinical studies. With regards to the negative returns, Mergers and Acquisitions generate inadequate financial value because they obstruct business performance, damage profits over short-term, drawaway the management and adding not a thing to the book value of new business (Devine, 2007). Cross-Border mergers are often ineffective due to lack of strategy and postmerger integration (Hopkins, 2008).
The testable framework is developed by a research that is previously published,outlined by the part of this paper. The aim of the theory is to examine the company specific elements describing the wealth effects evidenced by competitors following the disclosure of merger between Arcelor and Mittal.
Analysts explain the relationship between the rise in the rivals stock price when there is a disclosure of a merger with that of something good happening in return. Nevertheless there are dissimilar justifications of what this “good” is. They have further quoted theories. They are Collusion theory( Stigler, 1964; Eckbo,1983; Eckbo and Wier, 1985; Mullins et. al., 1995; Sharur, 2004), Buyer power (Robinson, 1933; Galbraith, 1952; Stillman, 1983; Snyder, 1996; Fee and Thomas, 2004) and Productive efficiency (Eckbo, 1983; Stillman, 1983; Sharur, 2004). In the stock markets, these theories have numerous justification for the same event.