Do mergers create value? If so, who profits from this value?
Do mergers create value? If so, who profits from this value?
Homework Answers
Answer: Yes, Mergers create value. Merger is a corporate action in which two companies merge and one new entity is created.
How do mergers create value-
- Merger increases market share of company.
- Vertical integration of product/service and supply chain.
- Potential tax benefits and shareholders' wealth maximization.
- Company achieves economies of scale.
- Benefit of diversification
Who gets profit?
Two companies merge together and new company is created, old companies are ceased to exist so new company gets benefits of merger. It gets synergy, synergy is 1+1 = 11, so when both companies come together, they use each other's resources, manpower and experience, the new entity is benefited. Shareholders of new company also get benefited as the share price increases in the market and they get capital appreciation.
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