power and resources to compete on a global basis" (Virani). However
than not a merger is where two enterprises of roughly equal size and strength come together to form a single entity. Both companies' stocks are merged into one. An acquisition is usually a larger firm purchasing a smaller one. This takes the form of a takeover or a buyout, and could be either a friendly union or the result of a hostile bid where the smaller firm has very little say in the matter. The smaller, target company, ceases to exist while the acquiring company continues to trade its stock. An example is where a number of smaller British companies ceased to exist once they were taken over by the Spanish bank Santander. The exception to this is when both parties agree, irrespective of the relative strength and size, to present themselves as a merger rather than an acquisition. An example of a true merger would be the joining of Glaxo Wellcome with SmithKline Beecham in 1999 when both firms together became GlaxoSmithKline. An example of an acquisition posing as a merger for appearances sake was the takeover of Chrysler by Daimler-Benz in the same year. As already seen, since mergers and acquisitions are not easily categorised, it is no easy matter to analyse and explain the many variables underlying success or failure of M&As.
Historically, a distinction has been made between congeneric and conglomerate mergers. Roughly speaking, congeneric firms are those in the same industry and at a similar level of economic activity, while conglomerates are mergers from unrelated industries or businesses. Congeneric could also be seen as (a) horizontal mergers and (b) vertical mergers depending on whether the products and services are of the same type or of a mutually supportive nature. Horizontal mergers may come under the scrutiny of anti-trust legislation if the result is seen as turning into a monopoly. An example is the British Competition Commission preventing the country's largest supermarket chains buying up the retailer Safeway. Vertical mergers occur when a customer of a company and that company merges, or when a supplier to a company and that company merges. The classic example given is that of an ice cream cone supplier merging with an ice cream manufacturer.
The 'first wave' of horizontal mergers took place in the United States between 1899 and 1904 during a period referred to as the Great Merger Movement. Between 1916 and 1929, the 'second wave' was more of vertical mergers. After the great depression and World War II the 'third wave' of conglomerate mergers took place between 1965 and 1989. The 'fourth wave' between 1992 and 1998 saw congeneric mergers and even more hostile takeovers. Since the year 2000 globalisation encouraging cross-border mergers has resulted in a 'fifth wave'. The total worldwide value of mergers and acquisitions in 1998 alone was $2.4 trillion, up by 50% from the previous year (andrewgray.com). The entry of developing countries in Asia into the M&A scene has resulted in what is described as the 'sixth wave'. The number of mergers and acquisitions in the US alone numbered 376 in 2004 at a cost of $22.64 billion, while the previous year (2003) the cost was a mere $12.92 billion. The growth of M&As worldwide appears to be unstoppable.
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What is the raison d'etre for the proliferation of mergers and acquisitions? In a nutshell, the intention is to increase the shareholder value over and above that of the sum of two companies. The main objective of any firm is to grow profitably. The term used to denote the process by which this is accomplished is 'synergy'. Most analysts come up with a list of synergies like, economies of scale, eliminating duplicate functions, in this case often resulting in staff reductions, acquiring new technology, extending market reach, greater industry visibility, and an enhanced capacity to raise capital. Others have stressed, even more ambitiously, the importance of M&As as being "indispensable...for expanding product portfolios, entering new markets, acquiring new technologies and building a new generation organization with power and resources to compete on a global basis" (Virani). However
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