What are the advantages and disadvantages of a firm merging with a rival firm? (thank you)?

Question

thank you

Answer 1

Potential advantages:
1. Boost profit margins by increasing revenue while cutting costs
2. Generate rapid growth in a business (especially if you can corner the market - imagine if Coca Cola merged with Pepsico)
3. Increase the size of a company to make it more competitive in the market
4. Geographic Expansion (for e.g. if both were from different continents)
5. Acquire technology (e.g. Microsoft and Hotmail)
6. Vertical integration into supplier or customer businesses (Alcan (bauxite mining) and Pechiney (aluminum can production))

Potential disadvantages:
1. Culture Clash: The cultures of the companies are too different and there is a war on for dominance and control. Culture is also a potential problem when a company is acquired and the acquirer's management tries to preserve the target's culture and very little integration occurs.
2. Premium is too high: This case occurs where there is a hostile takeover or a bidding war ensues for the target between two or more companies. The new company is stuck with high-priced assets that dilute future earnings.
3. Poor Business Fit: In some cases mergers are unsuccessful because technologies are incompatible, companies do not fit in terms of lines of business, or they do not have the requisite knowledge about the other company.
4. Debt: In situations where a company borrows money to fund an acquisition or assumes too much debt of an acquired company, too much of the earnings of a company are consumed by interest payments. In some cases short-term financing is used to finance the long-term investment and the company has difficulty refinancing.
5. Regulatory Delays: In instances where regulatory approval is required, any delays may cause staff to become nervous which could lead to the loss of talented employees from both companies.
6. Failure to Deliver on Synergies: Sometimes, the cost savings or revenue boost an acquirer expects to realize from a merger does not materialize. This can result from poor due diligence or overly optimistic forecasting. This shortfall in earnings can leave the acquirer's shareholders worse off than they would have been without the transaction.
7. Duplicated functions could lead to redundancies and job cuts

Answer 2

the disadvantage is loss of jobs and loss of competition.
the only advantage is more control of the product by the buyers of the company.

Answer 3

Some good replies already for this

Answer 4

thank you for the answers, greatly appreciated