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Mergers and acquisitions as a response to the deregulation of the electric power industry - Essay Example
Finance & Accounting
Pages 14 (3514 words)
The size of corporations and the complexity of their operations have transcended the power of nations and states that have created them; the matter of their growth and proliferation is therefore an important consideration in the formulation of national policies and the promulgation of laws…
Mergers and acquisitions are such modes of growth. Mergers occur when two firms of equal standing concur to combine their operations under one shareholder group; acquisition is when one firm outrightly purchases another and becomes its majority shareholder. As to whether they combine operations or not and the manner they choose to do so are a matter of strategic determination, but it does not detract from the fact of the merger or acquisition as a matter of ownership (Daniel & Metcalf, 2001, p. 216). This report examines the fundamental theories behind mergers and acquisitions and gives a cursory examine of one such undertaking.
Motives for firms to enter into mergers or acquisitions:
(1) To improve efficiencies by reducing production costs, increasing output, improving product quality, obtaining new technologies, or providing entirely new products. A merger or acquisition may explore both operating and managerial efficiencies. Operating efficiencies come from economies of scale, production and/or consumption economies of scope, enhanced resource allocation, shift to a less costly technology or asset configuration, or acquisition of better skills, use of grand name capital, and so forth (Pautler, 2003, p.122). ...