Introduction
Mergers and acquisitions refer to the process by which companies consolidate their assets through financial transactions. The two terms are more often used interchangeably but have different meanings. In a merger, two firms are united, forming a single legal entity with one corporate name. In most cases, a merger involves firms of the same size, and such an action is termed a merger of equals. On the other hand, an acquisition is the take of a company by another one that is relatively larger and establishes itself as the new owner (King et al., 2018). Companies strive to achieve the right market share in the present competitive economy through mergers and acquisitions.
The Merger
Recently, our company underwent a global vertical merger in which some parties involved were from Egypt. The merger was aimed at expanding the businesses to other countries. All the other firms shall henceforth operate under our company’s name, and we will expand our enterprises to cover their markets. The merger will eliminate the competition the firm faced initially. The provision of a larger market portion will enable the company to diversify its products and services to serve the increased number of customers.
Advantages
With the deployment of advanced technology in the business, the market has become very competitive. This has led to the necessitation of mergers as companies seek to deploy resources collectively. Unlike in associations, in a merger, when the firms join, a new entity is formed, and the newly formed enterprise is stronger with a larger share of the market (Hečková et al., 2019). The merger will enable the firm to establish a level economy with minimal expenses due to the reduced expenditures. For instance, the price of purchasing goods in bulk is relatively lower. Mergers play a significant role in minimizing interfirm conflicts as those producing similar goods join together. The main merit is that a merger protects an enterprise from the risks of debts and bankruptcy. The combination of assets during a merger facilitates the growth and expansion of the new company. As opposed to an association, in a merger, there is dilution and sharing of power among the involved parties, and this leads to harmony in the firm.
The merger generally serves the interests of the parties involved. Each company’s stakeholders will benefit as their dividends will rise. This is contrary to an acquisition in which the stakeholders of the purchased firm lose their shares and power completely once the new management takes full control of the company. By forming a larger company, each member will receive a raise in the shares held compared to the previous ones. The profit margin will be stretched as the company enters new markets and diversify its products and services. Such a merger will aid in lowering the firm’s tax liability (Hečková et al., 2019). This is because some parties involved in the merger had a significant tax loss.
Disadvantages
Merges, however, do have various limitations in comparison to acquisitions. In some cases, the firms involved in a merger may not have similar characteristics. This will make it challenging for the newly formed company to gain synergies. During a merger, the companies involved may be of different cultures and traditions. In such events, there will be a gap in the overall management and communication, specifically with the employees (Borodin et al., 2020). This will lead to a rise in violence and demotivation of the workforce. Such occurrences may undermine the firm’s operations, making it unable to achieve a level economy. Unlike in acquisitions, especially in an aggressive merger, the company may resolve to discard the underperforming assets of the other firms. Such action may lead to some personnel losing their jobs.
Implication on Human Rights
Our reasons for merging with the firms were to seek expansion and improve the status of the business. However, there is an ethical obligation to preserve human rights. This merger will have direct and indirect implications on the human rights of the members of all parties involved. In our case, however, it will have a positive implication. The firm will uphold each employee and contract worker’s labor rights (Borodin et al., 2020). There will be no wrongful termination of any previous agreement for any individual. The rights for self-determination will be respected as no course of action will be undertaken without the indigenous members collectively agreeing. Adequate attention has been paid to any impending risks our firm operations may cause.
Implication of Social Responsibility
The merger will also impact social responsibility in four main ways. The firm will promote philanthropic efforts throughout its occupied regions. The newly formed company will strive to support the community it serves by providing basics such as clean water and schools. The company is devoted to preserving the environment by seeking to combat the effects of global warming by controlling waste disposal and minimizing chemical toxins (Kiessling et al., 2020). The firms will uphold and respect diversity and labor practices. Every stakeholder will be treated with utmost dignity regardless of their rank. In every branch of the business, the firm will invest in the community by offering to support and contribute to society as a volunteer.
Conclusion
It can be concluded that mergers and acquisitions are essential concepts in business. The present world has a very competitive economy making it difficult for weak and unstable firms to survive. A merger entails two companies joining to form a single unit. An acquisition is where one company buys the ownership of the other. Such actions are essential in business as they equip a company with adequate resources to manage its operations. The company benefits from such unions by gaining a larger market share and minimizing competition. Increased sales lead to a rise in the profit margin and, consequently, an increase in the dividends for the stakeholders. Mergers have various social implications on human rights and social responsibility. In some cases, human rights, such as labor policies, are upheld. The newly formed may undertake social responsibilities such as offering volunteer services and conserving the environment.
References
Borodin, A., Sayabek, Z. S., Islyam, G., & Panaedova, G. (2020). Impact of mergers and acquisitions on companies’ financial performance. Journal of International Studies, 13(2).
Hečková, J., Štefko, R., Frankovský, M., Birknerová, Z., Chapčáková, A., & Zbihlejová, L. (2019). Cross-border mergers and acquisitions as a challenge for sustainable business. Sustainability, 11(11), 3130.
Kiessling, T., Vlačić, B., & Dabić, M. (2019). Mapping the future of cross-border mergers and acquisitions: a review and research agenda. IEEE Transactions on Engineering Management, 68(1), 212-222.
King, D. R., Bauer, F., & Schriber, S. (2018). Mergers and acquisitions: A research overview. Routledge.