Mergers Acquisitions and Downsizing Essay

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Mergers, Acquisitions, And Downsizing

Difference between a merger, acquisition and a downsizing

All the three are management strategies dealing with the competitiveness of the companies in subject (Cassiman, 2006). The choice for either of the three depends on the interest of the subject company in their relationship with the other companies in the industry. The differences arise from the various components such as their concepts, size, application and the condition for their occurrence.

The concepts

Merger is a cooperate strategy involving the combination of many companies whereby the subject companies intend to expand their business operations. Acquisition involves the combination of the companies with only one company having most interest in the newly established company. Downsizing always applies to both the acquisition and merger whereby the newly established company realizes that the new operating structure is costly: consequently triggering the need to downscale the cost (Shook & Roth, 2011). Downsizing often occurs after mergers or acquisition.

2. The conditions

A merger occurs when the deal between the subject companies ends in a friendly manner with the companies having equal contribution to the resulting new companies; the companies will have to share the profits equally. The merging companies cease to exist on their own, and the result of the merger is one new company under a single management. The companies come in with their different strategies, which they share with each other; consequently, making the resulting company more strong compared to their competitors in the market.

This concept differs with that of acquisition whereby one company will be taking over another company. Taking over occurs in an unfriendly manner. The acquiring company always has the power over the whole combination since they will be using their rules in the operation of the business. All the profits go to the acquiring company implying that the acquired company will cease to exist in the market.

3. The size of the companies

The companies forming the merger must always have equal size, and they will have to surrender all their stocks to the newly established company in order to expand their operation in the market.

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This ensures that no merging company has exploitation over the other and act as the base for the equal sharing of profit in the newly established companies. Equal size implies that the subject companies will have equal input in the operation of the new company. The companies in the association also have equal financial position of which their financial input is also the same.

In acquisition, the companies in the association always have different sizes. Subsequently, the firm with the large size always has more power compared to that with the small size. The former have more stock compared to the latter and always ends up in acquiring all the stock in the association. Because of its larger size, the latter will eventually take over the ruling of the whole business operation. The firms also have different financial position with the acquiring firm having a stronger financial position compared to the acquired firm.

4. The application

In a merger, two companies with the same size come together to increase their strength and financial gains in the market (Cassiman, 2006). Merging makes a brand shared by many companies to grow rapidly in the market, especially if the companies were to launch their product in a new market. Consequently, merger helps in breaking the trade barriers associated with the new markets. The mergers always act as a better strategy for the thriving of the newly combined companies since they will have more command in the market.

However, acquisition occurs when there is a downturn in the economy, which leads to declining profit margins. Consequently, the companies will have to restructure their operation and combine with the other companies to gain command of the market. The powerful company always swallows the….....

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