Investments and International Finance

THE USE OF MERGERS

TO INCREASE SHAREHOLDER VALUE

IN FINANCIAL DECISIONS

2008

Breadth Component Abstract

Merger financing can be accomplished by a leveraged buy-out , a stock option plan in some instances , or a stock buy-out /transfer . The best way a company can finance a merger they want to pursue is truly up to their own needs and abilities . If they do not have a lot of money then one regime may suit them better than the other such as the leveraged buy-out . It is in this instance where the advantages

and disadvantages of the different finance schemes come to light . Once financing for a merger can be procured , the decision as to what type of merger would benefit the company best should be decided . Vertical and horizontal mergers are two of the main mergers . Horizontal is the merging of rival companies , and this integration type has its advantages and disadvantages . Vertical is the merging of two companies within the supply-chain , and this integration type has its advantages and disadvantages . It should be of note that vertical integration can be up or down within the supply-chain . Ultimately the choice between vertical and horizontal should be whether the company wants to have a larger portion of the supply-chain or if the company wants to buy a rival

Depth Component Abstract

Horizontal and vertical mergers are two of the biggest types of mergers available for a company . Each merger format has some benefits and drawbacks . Vertical merger will present a company with a wealth of tax benefits , cost benefits and a higher degree of profitability due to greater efficiency . Horizontal merger offers a chance at greater market share and a higher degree of market and price controls . Both types of mergers run into some problems with antitrust regulation . In vertical integration the antitrust guidelines mainly look to whether or not the buying of a supply-chain company will become a barrier to entry for other companies . The horizontal integration and antitrust procedures are a little more intense . The government utilizes antitrust guidelines and an index that is normally called the HHI to determine whether a horizontal merger violates antitrust laws , although the government and many economists will admit that horizontal mergers often benefit the public . Despite the overwhelming power of antitrust , other conditions will cause a vertical and horizontal integration to not occur as well In vertical merger an issue of what type of property right is being transferred as well as the accounting costs outweighing the benefits are two items that can cause a company to have second thoughts about pursuing the combination . In horizontal merger a company will have doubts about the integration if the market is already too concentrated or the rival already has a large amount of the market share . The two merger types can be complicated and present the company with many pitfalls , but the benefits often outshine the numerous downsides

Application Component Abstract

Vertical and horizontal integrations have benefits and negative ramifications , but all of this information would...