Business Combination - Research Paper Example

Thus they manufacture petroleum products to a market which is characterized by few firms. Valero experiences a net growth of by 53.21 percent with net revenue $125987 while Marathon Corporation on the other hand has a growth rate of approximately 25.86 percent with a revenue of $78709. As per the financial data, it clearly shows that Valero’s revenue almost doubles the marathon and of the same amount by growth rate. With a $ 15 million in the good will for the CEO to make investments, the company can acquire the services of the marathon to increase their productivity in the market (Hove, 2006).

The company should acquire a firm which is in similar line of production as it would be easy to integrate it with ease in the system as the employees can be retained or the existing workers will perform the tasks without difficulty saving the management a lot of cash. This represents a form of diversification in the related fields. Diversification in the unrelated is usually complicated as the organization will have to expand every unit in the system so as to accommodate the new venture. Labor will have to be increased, new units brought and the company missing out on the opportunity to use the economies of scale provided by the existing employees.

This would increase the cost of production of the outputs which may result in the high prices making the corporation make losses since prices are determined by the market as the industry is quite competitive. Hence it would be only rational if the management invests in the same line of production since there would be minimum risks involved. By acquiring marathon corporations, there would various synergies that would help the firms to maximize the profits. The two companies will have a reduced cost of production as there would be sharing of costs.

This would make the organization to manufacture at relatively lower costs which will increase the units of output for the market. This will