With the development of social economy, the competitions between the enterprises become more and more fierce. In the market economic ages, the mergers and acquisitions between companies are very common. The mergers and acquisitions are a way which company can get more rights to control another company by buy shares and funds. Also there are lots of problems in mergers and acquisitions such as the element of risk and whether the mergers and acquisitions are helpful to economic market. This essay will make a statement about the advantages and disadvantages of mergers and acquisitions.
The approach in researching will be some information on internet, some books, newspaper. Generally with mergers and acquisitions, company can develop themselves’ scale. Mergers and acquisitions also can make scale developing quicker and quicker. J. G. Williams said “the purpose of mergers and acquisitions is relatively complemented into advantages” (J. G. Williams 1980). One reason is that each product can be circulating to each area naturally. For example, GELLY HOLDING Group made mergers and acquisitions to VOLOV.
GELLY HOLDING Group’s products can be injected into the overseas market, and they also can let the low level products of VOLOV injected into Chinese market. The second reason is that mergers and acquisitions can get many experiences from the company which had been done mergers and acquisitions. As same as the example that GELLY HOLDING Group made mergers and acquisitions to VOLOV. Company makes analyzing about the case which had been done not only succeed or failed so that they will get more experiences in operation.
Another reason is mergers and acquisitions can reduce a competitor in market. For example, YOUHAO Group from China made mergers and acquisitions to JUBAIDE from Xinjiang Province. Company gets more competitive power in market so that the shares’ price will increase to a higher level in stock market. For the customer, they will have more confidence and loyal in this company. The other advantage is that company will reduce many costs after make mergers and acquisitions. J. G. Williams said “Company can reduce costs by make mergers and acquisitions” (J.
G. Williams 1980). One of the reasons is that company can increase their skill without developing because they can get higher level of skills from the acquired company to attract more customers so that develop their profits. For example, LENOVOL made mergers and acquisitions to IBM of PC Business. The computer of LENOVOL became much better than before merging. Another reason is that company can attract more cooperative partners which the acquired company has had. For example, Rolls-Royce had been merged and acquired by BMW in 2002.
In market, the more cooperative partners mean the more opportunities and lower costs and companies also optimize the economic structure to reduce costs and risks. BMW got the highest level customer in the world because Rolls-Royce is the highest automobile in the world. The other reason is another kind of mergers and acquisitions which called Acquisition of industrial chain. It is done in upstream and downstream of the industrial chain such as shoes-selling company merged shoes factory, fruit juice-selling company merged fruit farm.
It strengthens the company’s sales and purchasing control, and brings the production and operation cost savings. The reduced costs may be transportation, deal cost, researching cost; and the reduced risks may be default risk, quality risk. The disadvantages of mergers and acquisitions are existence in the market as well. As time flew, people found that mergers and acquisitions may bring some problem to company and market. Chan, Chiu Yen (Rachel) said “mergers and acquisitions have several problems and risks must be considered”. (Chan, Chiu Yen (Rachel) 2010).
One of the reasons of risks element must be considered is that different problems would be come out because of the difference policy in different areas such as the lowest salary of employee is different in different area. For example, GELLY HOLDING Group made mergers and acquisitions to VOLOV, GELLY HOLDING Group must employ local workers but the rule of labor union is different from China. GELLY HOLDING Group must pay higher salary and more holidays than that in China. It means GELLY HOLDING Group had risk that workers go on strike in the prime mergers and acquisitions.
The other one of the reasons of risks element must be considered is company must research lots of data about market and the acquired company and this action is very cockamamie fussy, for example, the DOFDO mergers and acquisitions to MengNiu. DOFDO had researched whether the acquired company is worth to be merged; investigated financial issues like some company do not have a professional financial apartment; tax issues like some small company have not paid the tax legally. All of these issues had een considered by company so that the cost of these researching must be much and it has risk that the purpose company may be not in the merged standard. One of the reasons of problems element must be considered is that be called hostile takeover. It is common to see hostile takeover in market because of some company hostile takeover another company to get more profits. It means president would lose the major right in company. But some countries, such Japan, have taken appropriate measures such as set up a rule to prevent hostile takeover happened in business law.
All of these risks are bad for company developing smooth; company must make enough considerations for mergers and acquisitions to prevent the mergers and acquisitions are failed. Company can make mergers and acquisitions to any other company in market. This situation brings out a problem which called monopoly. Monopoly is deeply bad for market healthy. Monopoly can bring out monopoly price which monopoly can make a price they want. Monopoly also can die out the small scale company so that it is not diversification in market.
For example, CNPC (China National Petroleum Corporation) is one monopoly in China and it can make price casual. Also the foreign monopoly position can influence the polity in a country such as Goldman Sachs influence Vietnam economy in 1998 by investment in realty business. The same as the situation of hostile takeover, there is also a rule prevent monopoly happened in business law. In conclusion, because of the methods in researching is limited and time for researching is not enough, this essay just make analyze in generalized. In fact the researching will be more in detail in future.
But this essay has already made a statement of advantages and disadvantages of mergers and acquisitions with lots of theories and examples. The ultimatum of this essay is that there are lots of elements in mergers and acquisitions and the result of mergers and acquisitions is uncertain. Only company has experience and confident enough may have high rate mergers and acquisitions case successful. Successful mergers and acquisitions is good for company but it is bad for market while the company get too strong in the world or in a country.