A merger is an association of approximately equal partners, as a result of which a newly created company receives a new name. In a takeover, a larger company acquires and integrates the smaller company’s business into its structure. The distinction between mergers and acquisitions is determined by ownership, management control, and financial agreements, not by strategy and competitive advantage. The resources, competencies and competitive capabilities of a newly created company are usually the same, regardless of whether it was created through an acquisition or merger. Mergers and acquisitions are often the optimal strategic decision, especially in situations where alliances and partnerships do not allow the company to obtain the desired resources and opportunities. Ownership relationships are more reliable than partnerships, so mergers and acquisitions provide an opportunity to achieve a high degree of integration of merging companies.
A merger with another company, including a competitor, or its acquisition can significantly strengthen the company’s market position and open up new opportunities to achieve competitive advantages. By uniting, the companies strengthen their technological advantage, expand and improve competitive opportunities, expand the range of goods and services, including through the creation of new ones, develop new regions, strengthen their financial position, which allows investing additional funds in R&D, expand production capacities, and develop new regions. Moreover, the combination of activities often leads to a significant reduction in costs, so that the former company with a high level of costs becomes competitive with a medium or low level of costs.
Mergers and acquisitions are usually caused by two reasons: the desire to lead in global markets (in this case, mergers and acquisitions open the way to the markets of new countries) and the desire to take a favorable position in the industry in the future (mergers and acquisitions allow you to acquire the necessary technological knowledge and experience).
Nestle, Kraft (a subsidiary of Philip Morris), Unilever, Procter & Gamble and several other leading food and consumer goods manufacturers regularly conduct acquisitions, wanting to strengthen their presence in global markets. Daimler-Benz and Chrysler went on a merger to expand the range and strengthen their position in the global market of car manufacturers; this strengthened the position of the newly formed enterprise in competition with Toyota, Ford and General Motors. America Online has absorbed CompuServe with its extensive services to attract new consumers. Intel has conducted about 300 acquisitions over the past five years to become a leading provider of Internet technologies, expand its technological base and reduce its dependence on suppliers of components for microprocessors. Cisco Systems has acquired approximately 40 companies to strengthen its position as the largest provider of systems for Internet infrastructure [15 p.193].
However, mergers and acquisitions do not always lead to the expected result, sometimes due to initially high expectations, and sometimes due to unforeseen difficulties that cannot be fully foreseen in advance. Combining the activities of two companies, especially large and with diverse activities, often causes various integration problems, including fierce resistance of employees and conflicts due to the incompatibility of management styles and corporate culture. Achieving the intended cost reduction, obtaining the necessary information and skills, expanding competitive opportunities may not be as fast as expected, or, even worse, not implemented at all.
Competitive Advantages and Disadvantages of Vertical Integration and Narrowing Strategies
business – disintegration and outsourcing