Market Extension Merger Case Study

THE IMPACT OF MERGERS ON THE COMPANY AND THE SHARE PRICE

Introduction:

The most of the businesses across globe try to increase their financial stability and strengthen themselves by expansion. There are two ways of expansion been widely recognised to increase their operational excellence and gain substantial profits. Internal Expansion, by implementing new technologies, altering the course of operations, raising work performance, and launching new lines of products or services. Business expansion via internally will grow gradually, however the other method of External Expansion has greater impact than the other. The powerful external expansion occurs through merger, acquisitions, takeovers, amalgamations and dramatically supporting the globalization

Vertical Merger:

The consolidation of two companies that produces or offers different products and services for one specified market i.e. combining companies that belong to the same industry but produces different products. The significance for vertical merger is to increase the synergies that arise out by merging firms which will increase the operating efficiency. Example: Time Warner Incorporated and the Turner Corporation (CNN, TBS, and other programming)

3. Market Extension Merger:

Market Extension Merger is a kind where the companies selling same or similar product lines but in different market sectors. The main idea for market extension merger is to gain access to a wide market area which in turn increases the customer base. Example: Amazon and Alibaba

4. Product Extension Merger:

A type of merger that combines the companies which sells the related or similar products in the same market segments. This merger allows companies to combine their products and gives access to a wide set of customers which implies to earn huge profits. Example: Sun and Ski

The important reasons for merging is to cover the space in the company’s product, resources, extending market area and economies of scale, which the new combined entity will have when operated individually before. Economies of vertical integration helps to access significant control over the production process. Also through the new management, Operating profits can be raised by reducing wastages and redundancies from operations. Synergies are also an important reason for merging as the positive synergy could reduce the cost and drive up the revenues. In the merged firm, abundant skills and technology being pooled together and brings innovation in products and services. Hence the combined company with their new products will reaches customers widely, bringing in the profits ultimately. (Different types of Mergers and Acquisitions (M&A),