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Analysis of the Issues with the Merger or Acquisition of the Two Companies

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The production capacity of the merged company followed by a workforce reduction, decrease in the excess capacities and gaining market share through the competitive advantages as well as a reduction in cost by sharing administrative structure with the help of horizontal mergers (Bischoff, Sallstom & Danylow, 2011). Vertical mergers occur in the companies which are operating at different stage leading to the combination of the production and value chains. There can be upstream mergers as well as downstream mergers in the vertical merger activity. Downstream mergers are more common than upstream mergers because companies need to be in a strong bargaining position.

There is another factor if the suppliers are specialized in certain products or services where there is a requirement of superior expertise gaining dominance in the negotiation process. The main intention of vertical mergers is to reduce costs with the interlinked processes where more than one party is involved to gain better control over the market happenings. It also helps to cut back on transaction costs to have immediate access to resources avoiding uncertainty and minimizing contractile costs (Bischoff, Sallstom & Danylow, 2011; Pikula, 1999).

Conglomerate merger is also a kind of merger in which two companies operating in different industries merge to diversify their risk. Notably, conglomerate takeovers are regarded to have a significant impact on organizational cultural changes (Bischoff, Sallstom & Danylow, 2011). According to Pikula (1999), “ acquisition can be defined as the possession of a controlling interest in another company, a legal subsidiary or selected assets” . ‘ Acquisition’ can also be termed as takeovers. The buyer company can also term it as ‘ purchase’ , where the acquired company becomes the part of the buyer.

There are many reasons for the acquisition, some of them being financial reasons as the purchaser company expects the value of the asset will do better than the price paid for the acquisition. When a company acquires other company through stock purchase then the acquired company can continue to exist as a legal subsidiary of the acquirer.    

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