Financial management Essay Example | Topics and Well Written Essays - 1500 words - 1

Financial management - Essay Example Key principles that are followed by the Panel on Takeovers and Mergers are as follows: First, the panel follows the principle of equal treatment for every shareholder. According to this principle, every shareholder of the firm that is getting taken over should get equal treatment. Even if all the security holders do not posses adequate control on the operation of the company, each of them should be protected. Second, the panel strictly follows the rule of providing adequate advice and information timely to all security holders. Third, the panel can not allow the creation of any false market for the shares of the offeree firm. According to this principle, a company is allowed to announce a merger or takeover only once after it becomes completely ready for the event to conduct. Fourth, it is not possible for any firm to perform any unauthorized frustrating activities without having any approval from its shareholders. According to this principle, a firm can not issue or sell any share f rom its treasury without proper approval from its shareholders. (Fisher, 2003) B. The Economic reasons for mergers and acquisitions are some economic benefits that are obtained by means of mergers and acquisitions. The benefits are as follows: Efficiency: Mergers and acquisitions help firms to add up their assets. ... Besides getting efficiency at operational level, mergers and acquisitions also help in providing efficiency at management level to some extent. When a firm involves in the process of merging with another firm or taking over the assets of any other company, then it becomes possible to generate a market controlled by corporate. (Hunt, 2009; Sherman and Hart, 2006) Financial benefits: By taking over the assets of other firms, a business organization can follow the route of diversification of its earnings. This type of diversification causes a significant fall in the variation in the area of profitability of the company and thus helps in making a reduction in the risks of bankruptcy as well as attendant costs. Market power effect: Mergers and acquisitions is also helpful in providing greater amount of market power that in turn offers many benefits to the companies who involve in the process of merging. (Galpin and Herndon, 2007) Sometimes mergers and actuations become unsuccessful for th e following reasons: First, mergers influence organizational culture to a large extent. On account of mergers and acquisitions the employees of the merging companies have to experience rigorous anxiety. This kind of anxiety causes a fall in the level of productivity. Second, frequently, mergers are done with wrong intentions. Often, mergers or takeovers are used for seeking glory or to express financial strength. Third, the success derived from mergers and acquisitions is frequently hindered by variations in the work cultures as well as corporate activities of the firm which are involved in the process of mergers and acquisitions. Fourth, once the process of mergers and acquisitions becomes complete, firms generally put their focus on the issues relating to cost reduction rather than