Not a month goes by without one hearing some sort of rumors in the media regarding the merger between two companies. The frequency of mergers has increased in recent years. These changes in the global entrepreneurial landscape pose new questions regarding the relevance of the global economic model. Should the authorities intervene in the merger? The answer to this oft-repeated question is not too obvious. Developed countries are working to promote liberalism and free competition. However, mergers could lead to the end of free competition in the long run, where markets will be in a state of monopoly. But if the authorities intervene to block a merger, we might see a failure of liberalism. In the first section of this document, we will examine the concept of a merger from an economic standpoint. In the second section, we will look more specifically at the example of the merger between two major information and financial organizations, Thomson Corporation and Reuters, which we believe is illustrative of today's mergers and their economic issues.
A horizontal merger is a merger of competitors or potential competitors. Mergers of this type correspond to a strategy of specialization and lead to economies of scale emerging usually .
A merger of this type can create value in three main ways:
In reaching economies of scope: It is the case when the merged companies are employing similar assets (for example, common components) at specific stages of production. By increasing the market power of the new group: For example, when companies have merged with one or more number of common suppliers, and by acquiring a complementary technology or expertise to improve the quality of products or services. This is the case, for example, if a company buys a complementary to its.
A vertical merger is the merger of a company more generally, with a supplier. Vertical mergers are motivated by two main reasons:
- The control of a resource that allows to control the costs.
- The strategic reasons: The vertical merger may, for example, make access to a resource more difficult for competitors.
A conglomerate merger is between firms that operate with no links between them. These firms are looking primarily to diversify their product portfolios in the markets.
The fifth wave is characterized by an explosion of mergers around the world.
The current pattern of mergers is often strategic, reflecting the trends of globalization. This allows to increase economies of scale but also to compete more effectively. This fifth wave had the effect of raising further the level of concentration. Reconciliations are now called ''friendly''.
Mergers are now most often considered "mega-mergers." This term is generally used to characterize mergers between large groups. Indeed, with the fifth wave of mergers, values have reached high records.
The volume of mergers reached a record level at 4500 billion, up by 24% over 2006, according to final figures from the data provider Thomson Financial, published in March, 2008.
[...] These firms primarily seek to diversify their product portfolios and markets Evolution of Mergers over time Merger waves This graph shows that we can distinguish five distinct waves: - A first wave, from 1898 to 1903 - A second wave, from 1921 to 1933 - A third wave, from 1946 to 1975 - A fourth wave, that of the 80 - Finally, the current wave, which is the fifth wave, which began around The fifth wave This fifth wave is characterized by an explosion of mergers globally. The current pattern of mergers is mostly strategic as a consequence of globalization trends. This allows an increase in the economies of scale, and also allows companies to compete more effectively. This fifth wave had the effect of raising the level of concentration further. Reconciliations are now called'' friendly'' and are generally in the same branch. Mergers are now most often considered "mega mergers". This term is generally used to characterize mergers between large groups. [...]
[...] Thomson and Reuters became the leader of economic and financial information, making Bloomberg a follower in the field. The encouraging results of this merger proved the strategic importance that the purchase of a new business may involve, once again. Bibliography http://www.aesplus.net/Fusion-acquisition.html www.cybel.fr / html / Community / rdf / images / clavijio.pdf www.idrc.ca/fr/ev-122762-201-1-DO_TOPIC.html www.cerna.ensmp.fr/Documents/FL-Concurrences-4-2005.pdf Report merger of Thomson and Reuters There is talk of economies of scope when the final products are not competitive or substitutable. In other cases, we talk about economies of scale. [...]
[...] Merging the two entities Thomson and Reuters would make them a global information giant. However, is such a concentration really desirable? Is it desirable that such a merger goes ahead, knowing that it would concentrate the direct effect of economic information in the hands of a single major media? This question is especially relevant since the rumors to the effect that the financer of the News Corp. conglomerate Robert Murdoch (owner of, among other TV network Fox) is trying to get his hands on the Dow Jones, the owner of the prestigious Wall Street Journal, are persistent. [...]
[...] Mergers of this type correspond to a strategy of specialization and typically lead to economies of scale. A merger of this type can create value in three main ways: In the area of cost : this is the case when the merged firms employ similar assets (e.g., common components) determined at different stages of production. By increasing the market power of the new association: this takes place when companies which have merged, have one or more common suppliers. By acquiring a complementary or technological expertise to improve the quality of products or services offered. [...]
[...] Thomson, whose historic headquarters is in Toronto but whose operational headquarters are in Stamford (Connecticut), owns 70% shares in the new entity which will be headed by Tom Glocer the former CEO of Reuters. This merger was approved by the founders of Reuters who had a veto. The combined business finance and media is called Thomson-Reuters. Reuters, and Thomson's existing activities including legal, tax and accounting divisions which generate the bulk of sales of the Canadian group, have been renamed Thomson-Reuters professional. David Thomson is the president of Thomson-Reuters, Niall FitzGerald, former chairman of Reuters, and W. Geoffrey Beattie is the vice presidents of the new group. [...]
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