Mergers And Acquisitions
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Running Head: Mergers and Acquisitions
Mergers and Acquisitions Paper
Shae Lewis
July 9, 2007
Mergers and Acquisitions
The following document will assess the impact of mergers and acquisitions on a business and will include sensible and dubious reasons for benefits, costs of cash, and stock transactions. The paper will examine financial risks of merging with or acquiring an organization in another country and how those risks could be alleviated.
A merger is a combination of two firms into one, with the acquirer assuming assets and liabilities of the target firm. (Brealey, Myers, and Marcus 2003) An acquisition is obtaining control of another corporation by purchasing all or majority of its stocks or assets. The impact that mergers and acquisitions have on a business are that one of the major factors that must be considered in international mergers is the rate of currency exchange. Merging and acquisitions may impact assets and finances as well. Exchange rates impact the M&A marketplace in a number of ways; with the US dollar weak against the euro, US companies become likely targets for European buyers seeking to take advantage of their currencys current buying power. Multinational companies that sell goods in the US must also deal with the impact of weaker dollar on their profits. (Dolebeck, 2005)
Many mergers may appear to make sense nevertheless fail because managers cannot handle the complex task of integrating two firms with different production processes, pay structures, and accounting methods. (Brealey, Myers, and Marcus 2003) A dubious reason in benefits, costs, and stock transactions is diversification which is easy access and cheaper for the stockholder but not the establishment or firm. Individual investors can diversify which is easier than a firm combining operations.
Mergers and acquisitions use something called the bootstrap game which if done by achieving the higher earnings per share without a decline in price ratio earnings. This is done by purchasing firms that are slow growing with low price ratios. Fooling investors evidently