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Empirical Finance: The Failure of Merger of Equals
Finance & Accounting
Pages 26 (6526 words)
The Failure of Merger of Equals Course: Name: Date: Abstract This research looks at the merger proposal made by Xstrata to Anglo American. The proposal was rejected as unacceptable. The article looks at some reasons for mergers and causes of failures. The aim of the study was to determine if t would have been successful had it been allowed to go through.
Some of the reasons given for mergers relate to efficiency, market power, market discipline, expansion of operations and diversification (Andrade 2001). In terms of efficiency, emphasis is placed on economies of scale or other synergies that may result. Horizontal mergers often refer to economies of scale to be gained; however, economies of scale do not continue to infinity. There is always a point to which they apply, unless more advanced technology can extend it further then diminishing returns is likely may set in. 1.1 Background In the letter proposing the merger of equals between Xstrata (the bidding company) and Anglo-American (the targeted company) Xstrata (2009a June 17) stated that the combination was being considered for some time and such a merger is ‘a compelling, value-adding proposition for both sets of shareholders’ while combining a management team that would bring to the table ‘fresh and value-creating opportunities’ that may not be available otherwise. On June 21, 2009 Xstrata sent out a news release indicating that it notes Anglo American’s response. Xstrata (2009) argued that the merger of ‘two world-class companies would bring about many benefits. ...
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