Merger Essay

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MERGERS AND ACQUISITIONS

In basic terms, when two companies join to form a new company, it is called a merger; whereas, when one company buys the other where no new company formation is done it is called acquisition. Technically, mergers happen between two same sized companies. Stocks for both the companies are surrendered and new company’s stocks are issued. For example, when Chrysler and Daimler-Benz merged, a new company called DaimlerChrysler was created. On the contrary, when a purchase happens and the buyer ‘swallows’ the target company wherein it ceases to exist is called an acquisition. How a deal is announced and whether the purchase is hostile or friendly is what determines whether it is considered as a merger or an acquisition.

The mergers can be horizontal, vertical, co-generic, or conglomerate in nature. Horizontal mergers happen between firms of the same industry segment. A merger in same industry but in different fields is called a vertical merger. Co-generic merger is a kind in which the two companies merging are in some way related to the business markets, production processes or basic technologies required. When companies of different industrial sectors combine their operations, it is called a conglomerate merger. Acquisitions can be either congenial or hostile.

Mergers and acquisitions happen because in tough times, companies hope to benefit by acquiring new technologies, staff reductions, reaching economies of scale quicker, and improved market reach and industry visibility. This is the ideal scenario for a merger, but many a times it’s the opposite case. Such synergy might just be in the minds of the leaders of the two companies, and may or may not create an enhanced value. Regardless of the category of...

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... leader to acquire Suzuki Powertrain India Ltd (SPIL). SMC holds a 70 per cent stake in its subsidiary SPIL, while the balance is held by MSI.
This merger is beneficial because it brings all Maruti Suzuki diesel engine operations under a single management. This was done due to the increasing dieselisation of the Indian market. This would help in bringing down costs and would also provide more elasticity to meet market demand fluctuations. It would help create a cohesive diesel strategy as it will provide synergies in finance and capital. SPIL supplies 3 lakh diesel engines and transmissions to MSI every year. As per the understanding, the swap ratio has been fixed at 1:70, which means SMC will receive one share of MSI of Rs.5 each for every 70 shares of Rs.10 each it holds in SPIL. There would be no reduction in jobs due to this merger but books of accounts merged.

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