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Hi, need to submit a 1750 words paper on the topic Possible Motives for Mergers. Some mergers look for cost-based economies of scale, some may look for revenue-based economies of scale, safety net-based economies of scale, the defense-based scale of economies, etc. Similarly, ‘economies of scope’ is also varied in nature: Cost-based economies of scope, revenue-based economies of scope, and diversification-based economies of scope.

Reduction in Expenses – A merger must result in the adoption of new technologies, goals, strategies, and operational approaches in such a way that they cumulatively lead to cost reduction in delivering the services and thereby make the merged-entity more competitive in garnering increased sales and net margins.

Enhanced Market Power and Reduced Earnings Volatility – It is obvious that the acquired business should either add to the market share of the company or create a fresh niche market of its own so that volatility in earnings can be minimized and profitability is sustained. Earnings are sustained only when sales performance constantly improves and that is where mergers come handy in creating that extra “edge” over the competitors with the least loss of time.

Smooth Privatization – The ongoing sovereigns’ love for deregulation and privatization resulted in cross-border movement of capital mostly into developing economies for acquiring controlling interests in companies being privatized. Indeed, many developing countries could attract fresh capital and modern technology into their otherwise obsolete public sector businesses and make them competitive through cross-border mergers/acquisitions.

Competency Buildup – In today’s deregulated markets, “competency” of domestic businesses has become a must, to face the onslaught from multinationals. In this regard, mergers have come handy for consolidation and buildup of requisite “scale of economies” and “scale of scope”, to maintain the revenue stream with least volatility (Houston 2001).

Tax Gains- Mergers and acquisitions attract capital gains tax in the hands of the amalgamated company/acquired company on the sale of its assets and shares. However, the treatment of taxing capital gains is not the same globally. A few countries such as Singapore and Malaysia, tax capital gains on real estate or shares in real estate at special rates, while Hong Kong exempts capital gains. Indonesia and Thailand tax the capital gains arising on the sale of shares and other assets at the normal rates of tax.

Failure to anticipate a problem before the problem actually arises – Managements may unwittingly administer a merger process hoping to reap synergy or they may initiate a disastrous step hoping to bring cultural fusion between the acquired and the acquirer. One common underlying reason behind these acts could be that the acquirer firm may have no experience of such problems and thus are not sensitized to such probabilities. It is only in the hindsight that the analyst could say today that the merger of copper business was a mistake, unless one increased its production capacities, to enjoy operating leverage. There are umpteen reasons as to why companies may fail to anticipate problems:

Failure to perceive the problem, when the problem does arrive – Once a merged unit faces unanticipated problems, the immediate requirement is to address the issues that became a hurdle for the realization of anticipated benefits. But in reality, management seldom perceives the problem that has actually face and reasons for the same could be many.