Economic Aspects of Mergers and Acquisitions

Abstract

The recent liberalization of the earlier state controlled, sluggish Indian economy has made mergers more necessary and acceptable. Till some years ago, takeover of one company by another was viewed in India as a sign of failure of the former, and violent aggression of another.The acquisition was derived mostly by the tax benefits of the loss carry forward. There are now more economic reasons and wider choices of takeovers/mergers.

Competitive forces resulting from globalization and deregulation in many industries across the border have forced most corporate to consolidate.European and Asian markets have become more receptive to merger and amalgamation activity. The merger of Daimler-Benz and Chrysler is a good example of globalization.There was an over –capacity of around 30percent in the global car industry.The merger aimed at helping the functional Chrysler cars to enter the prestigious Daimler Benz vehicles to cruise into the American market, including access to the wide European and Asian network of Daimler-Benz and the help the German car company, on its part to access the logistics and service supporter of Chrysler. With prices falling faster than productivity gains, volume producers in Europe were expected to face a yawning gap of $18 billion between revenues and costs. So a merger to globalize operations made sense.