Essays on Merger of Public Limited Companies in the UK Case Study

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The paper "Merger of Public Limited Companies in the UK" Is a great example of a Management Case Study. Mergers have continued to increase in the UK for the last 5 years. The region has been hit by a wave of mega deals characterized by high numbers of mergers and acquisitions. However, the main deals are primarily horizontal in nature though diversifying mergers have also been undertaken in the UK’ s financial industry where banks and insurance companies have been merged. Most of these mergers have been attributed to globalization.

Within the five years, period domestic deals have dominated the M& A market with cross-boarder mergers recording a significant increase. Currently, dozens of companies are operating in the various national and regional energy markets in the United Kingdom - everything from local, regional firms to big multinational companies with operations straddling the whole value chain: generation, sales, distribution, and trading. Several merged companies also have considerable sales of gas and are dynamically determined to integrate their gas and electricity operations. Conversely, organizations that earlier pursued a multi-utility strategy, such as water/ electricity/ waste collection, are starting to dump this approach following the absence of projected synergies. These mergers have seen companies achieve geographical diversification, increase market share, reduce tax, attain resource transfer, cut down the two companies’ expenditure, enjoy economies of scale as well as achieve general economic development, for example, Iberdrola / EDP merger.

They have also been used in achieving change in situations where the incumbents have failed. The merger has led to proper use of complementary resources within the two merging companies with the witness of merger gains, these gains include; changing capital requirements, reduced taxes, revenue enhancement, reduced direct and indirect costs.

This paper seeks to evaluate and analyze the merger between Iberdrola / EDP in this UK oil industry. It will outline the various reasons that led to this merger, explain the changes that have occurred after the merger as well as examine the potential benefits and losses arising from this mergers. Reasons behind the merger As observed by Alan (2000), the dominating motive behind mergers and acquisitions as far as economic and finance literature is concerned has been improving the economic performance of merging companies.

As suggested by this economic motive, the two companies have merged following their economic gains prospects i. e. the total value of the two separate companies (CA, CB) is believed to be lower when compared to the sum value of the merged company (CAB). (CA, + CB) < CAB The merger was undertaken in anticipation of reducing variable as well as fixed costs. Both companies merged in order to realize some form of savings in terms of costs. This has seen the realization of improved financial performance through the removal of intersecting costs, for instance, administration costs and IT expenditure.

However, the prospect of cost reduction is not restricted on the horizontal mergers following its fixed costs nature, it also includes other forms of mergers. Vertical integration has offered unique avenues for cost reduction, for instance, cost reduction has been achieved by shunning the communication and bargaining costs. Where production processes call for incorporated production sequence, vertical integration has ensured that lower production costs are attained in the merging firms.

References

Alan, J. (2003), Corporate Takeovers, (Chicago: University of Chicago Press)

Gaughan, P. (2004), Mergers and Acquisitions. (New York, Harper Collins)

Ingham, H. (2002), Mergers and Profitability, (Chicago, University of Chicago Press)

Jensen, M. (1998): The Agency cost of Free Cash flow, corporate finance and Takeover, (New York, Prentice hall)

Jensen, M. (2005), Takeovers; cause and consequences, Journal of Economic Perspective, 2, 20-58

McGarvey, R. (2003). "Merge Ahead: Before You Go Full-Speed into a Merger, (London, McGraw-Hill)

Mergers in UK, available from www.oft.gov.uk (Retrieved November 29, 2007)

Palepu, K. and Ruback, L. (1998), Does corporate performance improve after mergers? Journal of Financial Economics, 31(2), 123-138

Porter, M. (1999), Competitive Strategy, (New York, Free Press)

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