Impact o Mergers and Acquisitions on Financial Performance - Essay Example

The context of this study represents understanding mergers and acquisitions, and their impact upon financial performance. The preceding statement carries a broad number of facets that need to be considered and equated in delving into such an inquiry. Mergers and acquisitions represent the decision of one and or both companies whereby combining their operations, merger, represents an arrangement that will enhance shareholder value through the synergies of operation that will occur (Mullins, 2003).

In general, mergers occur through the pooling of the company's stock, which is derived at via a ratio that is specified through stock price, market capitalization and other measures, with the formation of a new company, usually representing the name of one or both of the two entities involved (Mullins, 2003). An acquisition differs from a merger in that it represents the takeover of one company of another that can be termed as being either friendly, or hostile (investopedia, 2008). In equating the word acquisition, one also needs to be cognizant of how the takeover is phrased by the companies in question.

Not all so called acquisitions are acquisitions, but in fact mergers if both companies agreed to the terms and are cooperating in the analysis of benefits for shareholders as well as the futures of the firms, then in effect, this type of acquisition is in reality a merger, interchangeable words, depending upon circumstances and conditions (diffen.com, 2007). When the targeted company is not seeking or does not want to be acquired, then these are always termed as being acquisitions, many of which are called hostile (diffen.com, 2007).2.0 The Rationales Behind Mergers and AcquisitionsIn order to equate the impact upon financial performance as represented by mergers and acquisitions, the rationales and decisions behind these activities will aid in providing insight as to the purpose(s) of management in seeking this course of action.

Canals (1997, p. 1) helps to provide