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Merger and Acquisition PDF

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Added on  2021-06-14

Merger and Acquisition PDF

   Added on 2021-06-14

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Running head: MERGER AND ACQUISITION1MERGER AND ACQUISITIONInstitutionStudentCourseDate
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MERGER AND ACQUISITION2In the recent past, the business environment has increasingly become turbulent and competitive.Various reasons have been attributed to these changes including advances in technology andincreased global competition. Johnson & Scholes (2003) contended that organizations need to setup new creative routes for enhancing their operations The corporate world has experienced majorparadigm shift in strategic growth plans, expansion and defense tactics in what has seen theimplementation tremendous mergers and acquisitions across all industries. The natural oil andgas industry has itself been part of a voluminous merger and acquisitions transactions of the 21stcentury in the United States. Mergers and acquisition is a concept under corporate restructuring that often results in a situationwhere two or more previously independent companies operate under a similar roof with theobjective of gaining financial or strategic objectives. Prima facie, there is little differentiation inwhat results from a merger or acquisition, but the two actually have different approaches. Amerger results when two firms of equal size and scale, combine as a single entity and theiroperations made under a similar roof. Here, the two previous entities cease to exist, and a newone is created. Under an acquisition, one company often referred to as the acquirer, takes overanother company the target through established ways and brings it (the target) under newmanagement[ CITATION Gau18 \l 1033 ].Mergers and acquisition are premised on the principle of synergy in that two firms that cometogether are more valuable than when they operate separately. Other reasons for merger andacquisitions include: industry trends, economies of scale, need to spread risks, need torebrand/alter corporate identity, to gain the competitive edge over other players and improvedmarket reach and access. Mergers, with respect to the business perspectives and end goal, take avariety of forms. Mainly, there are horizontal, vertical and conglomerate mergers. 2
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MERGER AND ACQUISITION3A horizontal merger occurs when two firms in the same level or scale of operation in the sameindustry come together often to challenge rising competition through combined synergies.Vertical mergers on the other hand result from the combination of two or more firms in the sameindustry but at different scales of operation. Conglomerate mergers involve firms from entirelydifferent industries, more often for technological and long-term strategic reasons.Regardless of the form, a merger takes, due preparation and evaluation must be conducted toguarantee its success. In particular, due diligence must be conducted to ensure suitability, andthat the new entity is a success [ CITATION DeP11 \l 1033 ]. It acts as the watchdog to ensurethat all aspects of consideration before the merger is formulated are keenly looked into. Theseaspects may include the target's strategic position, financial prowess, operational resources, andassets as well as legal matters[CITATION CRI10 \l 1033 ].In what made history on the map of world oil industry is the 1999 merger between leading oilgiants Exxon and Mobil to form Exxon Mobil Corporation. ExxonMobil was formed by Exxonformerly New Jersey’s Standard Oil Company, and Mobil, New York’s Standard Oil Company.Its headquarters are based in Irving, Texas and have over the years grown to become one of theworld's leading multinational oil and gas corporation. The company's stock is publicly traded atthe New York Securities Exchange (NYSE). Seemingly, ExxonMobil came into existence in reaction to the growing competition from fellowoil giant British Petroleum (BP) that had acquired several other oil companies. The mostsignificant one, however, was its 1998 merger with Amoco formerly the Standard Oil of Indianacreating BP Amoco PLC. This mergers catapulted the company to become third largest oilcompany in the world. With other acquisitions resulting thereafter, Amoco oil stations in the USwere rebranded to BP corporate identity. 3
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