How to Merge Two Companies Essay Example | Topics and Well Written Essays - 3250 words

How to Merge Two Companies - Essay Example If the merger does not result in increasing the value of the new company, then there is no presence of synergy and the merger will be ineffective. A strategic merger can reduce the tax burden by benefiting the statutes and loopholes in the law. As there is cash outflow in the merger, the taxable amount of profit will come down. Another chance of tax saving is that if a company running in losses merges with a profit-making company, there will be set off of losses and ultimately it will result in tax saving for the profit-making company. Diversification helps in improving the operations of the organization. Sometimes the company may be interested in diversifying its operation to be more profitable and competitive in a highly competitive marketplace. Some mergers happen only out of the sole discretion of the managers. In most of the cases, the merger can result in increasing the value of the new company. That may result in increasing the salary of higher-level managers. If they think that they will be monetarily or non-monetarily benefited if the merger happens then they will implement the merger. If the company a and company b is going to merge into company c then the value of company A and company B if they are taken separately is known as break-up value. If the break-up value is more than market value the merger or acquisition will have a better result. Horizontal Merger: If the two companies doing the same business or deal with similar or complementary products, merge to form a new company, then the merger is called horizontal merger. A soft drink company may merge with a sugar manufacturer for increasing synergy.