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Mergers And Acquistions

Merger and Acquisitions
Companies merge and acquire other companies for various strategic reasons with various degrees of success. The success of a merger is measured by whether the value of the acquiring firm is enhanced by it. The practical aspects of mergers often prevent the forecasted benefits from being fully realized and the expected synergy may fall short of expectations. This paper discusses three examples of recent mergers, the forces that drive companies to buy or merge with others, and the financial outcomes of each case.
In May, 1998, Daimler-Benz and Chrysler Corporation, two of the world's leading car manufacturers, agreed to combine their businesses in what they claimed to be a "merger of equals." The merger resulted in a large automobile company, ranked third in the world in terms of revenues, market capitalization and earnings, and fifth in the number of units (passenger-cars and commercial vehicles combined) sold (Gaughan, 2004). The strategy going into that merger was to allow both groups to maintain their existing cultures. The former Chrysler group was given autonomy to manufacture mass-market cars and trucks, while the Germans continued to build luxury Mercedes. In this case, the merger would offer new products, countries, segments, brands, or skills, will add much more to your business than someone who does the same thing you do (Gaughan, 2004). Despite significant short and medium term expected synergies, DaimlerChrysler has only been posting low or negative profits after the deal. The $5.8 billion loss in 2001 was the biggest in German business history. Last year, the combined market value of the merged entity had fallen to about half the value of their separate valuations in 1998. Rivals such as BMW, Renault and Nissan, on the other hand, managed to improve in 2004 despite the same challenging environment (Mermigas, 2002). But the DaimlerChrysler merger has been a financial black hole for the company; its market value has tumbled 40...