The main reason why companies merge is so they can both have an access to resources that will increase value hence improve both parties. This goal is indeed attainable, however it is essential for both companies to consider synergy as it is a crucial part of the merger equation. Synergy refers to the state of increased success that companies tend to experience when they merger. This high level of success is impossible for them to achieve on their own. Therefore, in addition to the creation of increased value, the companies also get to enjoy increased levels of success. In reference to the statement, The combination of business will result in a long product steel producer with annual crude steel capacity of 5.6 million tonners, synergy is important because the companies seem to be interested in achieving increased success, aside from creating value which is the main goal of a merger.
Difference between Merger and Acquisition
It is important for companies to know when it is best to merge, and when it is even better to acquire other companies. The decision made depends on what the company seeks to achieve in the long run. For instance, as the CEO of a company which seeks to diversify its operations, may choose to acquire another in an unrelated industry. Acquisition is all about taking over another company so that it becomes part of the main company. On the other hand, a merger is where two companies with different managements come together with the aim of complimenting each other so that both can benefit. Therefore, if the main aim of the company was to grow, then a merger would be the best decision.
Factors Necessary for Concluding a Merger Transaction
Both companies have covered the critical factors for concluding a merger transaction. For instance, they have analyzed their internal and external environments. This has enabled them to identify strength and weaknesses in their companies. For example, they have analysed their financial situations; hence, they know what it is they seek to achieve from the merger. In addition, they have come to an agreement of their individual duties and contribution once the merger is done. From the case study, it is stated that Votorantim Siderurgia will become a subsidiary of ArcelorMittal Brasil and that Votorantim will hold a non-controlling interest in ArcelorMittal Brasil.
ArcelorMittals Due Diligence Process Ahead of the Merger
Before committing to the merger, ArcelorMittal needs to research and know what it is buying, as well as the obligations it will be assuming by continuing with the merger transaction. Financial statements need to be subjected to scrutiny so that the merging company will know the kind of problems it should expect. The company needs to know the extent and level of quality of the technology and intellectual property. Next, it is also important to research on the target companys customer base so as to determine where there is a larger concentration of customers as well as the area where sales are outstanding. An important due diligence is determining whether there is a strategic fit. The future performance of the target company is not the only important factor. There is also a need to see how it will fit within the larger business organization of the buyer.
Ensuring the Merger would be a Success
In ensuring that a merger becomes successful, the culture of both organizations plays important roles. The culture of the buyer needs to be accommodating and almost similar to that of the target organization. This will make it easier for both groups of employees to work together. Strategy is also important as the buyer must employ it effectively in the merger. The process must be handled step by step with care so as to avoid disrupting operations or stirring unrest in employees. Customers are also important in the merger because they need to know that their products of high quality will not be interfered with. If anything, they need to be assured of improved quality and services. Lastly, suppliers are also important since they need to continue offering raw materials to the company. Basically, none of the two companies will disrupt the operations of the other.
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