Do Mergers Add Value? Essay

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Introduction If we look at a numeral of diverse activities in comparison to other activities and trends in market, such as privatization and deregulation of financial markets, a very huge and rapid method for consolidation of publicly listed firms, which has been taken place in US, Europe and Asia-Pacific during the last decade and if we check and analyze these investment decisions they says that the largest investment decisions that most firms make is to Merge with other firms. 1 According to the literature we are assuming that markets are efficient and in-general manager focus on the question whether mergers on average add or destroy shareholders value. Known that corporate managers have two choices of growth, organic growth and…show more content…
In this integration two or more entities come together to combine and share their resources to achieve common objectives. According to literature ‘Merger’ is a combination of organizations, where both the merging companies wish to join as one and do so on normally equal terms and which “create an organization where neither party can be seen as acquirer”. In other words it is a collaboration of two or more firms into one, through a purchase acquisition or a pooling of interests. Leveraged Buyout When a group of investors takes over a firm it is called a leveraged buyout, or LBO. The LBO group takes the firm private and its shares no longer trade in the securities markets. Usually a considerable proportion of LBO financing is borrowed, hence the term leveraged buyout. Reasons on Undertaking Mergers It is evident that there has been an increase in merger activity over the past few decades around the world and according to Peacock and Bannock (1991) the lure of mergers to be a way of expansion and it can be represented in few main points that motivate the activity. Firstly, the activity related to a merger with an operating business should be less-time consuming, especially in a global environment. Merger activity can be pressed through in a stage of weeks or months unlike the slow activity of internal/organic growth, which need exhaustive planning,
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