Mergers & Acquisitions （M&A）: Why merge and what effects can it bring?

Merger refers to two or more independent enterprises, the company merged to form a company, usually an advantage of the company to absorb one or more companies; acquisition refers to one or more companies in the securities market with cash, bonds or stock to buy the stock and assets of another company in order to obtain control of the company, and the company's legal status does not disappear; acquisition of only a way of corporate mergers, in particular the merger of the stock market publicly listed company is the majority of the way in the most case. Therefore, corporate mergers and business acquisitions are often collectively referred to as mergers and acquisitions (M & A). However, M & A are a way of business expansion and growth, but also an alternative method of invested capital through internal or organic growth. Which lead to enhance the competitive advantage and achieve business objectives of the behavior?

What is the motive for M&A? The firm decide to merger with other firms for a variety of reasons, regarding to Arnold (2008) has identifies four classes of merger motives. There are including, synergy, bargain buying, managerial motives and third party motives.

Looking at the recent case, as McLannahan (2012) reported the Tokyo Stock Exchange and the Osaka Securities Exchange is merging into a single entity by 2013. As TSE CEO said “The Japanese market needs to be of a certain size and offer unique services in order not to be left behind by global developments.” In theory at least, the merged company, should be a more attractive place to do business than the TSE or OSE in isolation. Moreover, Tokyo will acquire a majority of the Osaka bourse, form a holding company, maintain the OSE’s public listing and create four business units: cash equity market, futures trading, regulatory and clearing. That will give it both scale and solidity.

In the intense market competition, the company has only the continuous development in order to survival, that usually enterprises either through internal investment access to development, also can be obtained through M&A, both compared to M & A approach more efficient, and its main in the following areas:

First, M&A can save time. In very short time to expand business scale to enhance competitiveness. The management and development of enterprises in a dynamic environment, at the same time, that competitors are seeking development, therefore, must grasp the opportunity in the development process to obtain a favorable position as far as possible before competitors.

Second, M&A can reduce the risk of barriers to entry and business development. Enterprises to enter a new market will encounter various barriers, including: capital, technology, channels, customer experience, these barriers not only increases the difficulty of the enterprise to enter the market, but also increases the cost of entry and risk.

In addition, M&A can contribute to the development of transnational corporate. At present, the pattern of global competition has been basically formed, cross-border development has become a new trend of business enterprises to enter new foreign markets, is facing more difficulties in approaching new markets such as domestic. Include: enterprise management mode, the difference of the operating environment, government regulations and restrictions. M&A an enterprise of the local existing entry, not only can accelerate the speed of entry, and can use existing enterprise operational systems, business conditions, management of resources, so that the smooth development of enterprises in the next stage.

In the corporate M & A, that has huge sums of money paid to the target company, therefore, how to raise these funds to become a major issue in the implementation process of mergers and acquisitions. According to Arnold (2008) shows that some methods of financing mergers, such as cash, shares and other types of finance. Which method of financing to choose, and the impact to shareholder value?

Firstly, using cash mergers is that its simplicity and preciseness give a greater chance of success. One of the advantages of using cash for payment is that the acquirer’s shareholders retain the same level of control over their company. But target shareholders have not suddenly taken possession of a proportion of the acquiring firm's voting rights. Cash has the advantage for target shareholders that is in addition to being more certain in its value Arnold, 2008).

On other hand, Arnold (2008) also explained shares financing merger has some advantages, as target shareholder of receiving shares in the acquirer rather that cash, the capital gains tax can be postponed because the investment gain is not realised. Furthermore, they maintain an interest in the combined entity. To the acquirer, an advantage of offering shares is that there is no immediate outflow of cash. However, there are benefits in the period of M&A. Whether the acquiring company or target companies that the shareholders often play a decisive role in the process of M&A.