A merger is a process where two or more companies are combining to form a single large business or company. The act involves a situation where the companies involved transfer their ownership of the previous company, which can either be done through a stock swap or paying of cash between the companies involved in the merger process. In essence, these companies will have to surrender their stock and offer a new stock as a new company formed. It should be understood that mergers exist in various forms. These forms can include, for example, vertical mergers which involves coming together of two or more companies operating in the same industry value chain, like those companies engaged in the supply or the distribution of products or even manufacturing companies (Bodie, 2005).
On the other hand, horizontal mergers involve companies in the same company, for example, steel companies or even banks. In addition to the above, a concentric merger is a situation which involves two related companies but though is not in the same industry. Such mergers can, however, use the same skilled workforce or technologies to produce in both segments of the merged industries, for example in banking and leasing. The lasts type of merger is known as a conglomerate which happens between two different companies that are capable of sharing the various management in improving the economies of scale for the two companies involved in the merger. Sometimes, a merger can involve new branding as well as indicating the image of the merged companies. In most cases, a merger can result in a combination of the various two names of the two companies (Munk, 2009). This will have to capitalize on the strengths of the brand identity of the merged companies. Therefore, it is significant to note that the primary purpose of this essay is to investigate the various types of mergers, the advantages as well as the weaknesses of the merger as a business practice.
Having looked at the above, it is important to note that there are several advantages of a merger between companies. These advantages include:
By AOL combining with Time Warner, the two companies will be able to benefit from a mixed audience and content. When businesses come together, they bring on board their audience and fans together thereby there is a high possibility of these two companies benefiting. The increased viewership, as well as other customer subscription, will make the merger to benefit financially highly. At the same, coming together of AOL and Time Warner will help them when it comes to issues of video programming, alongside new and automated means of buying advertising (Bodie, 2005).The pairing up, therefore, would enable these companies to emerge as the strongest in the market thereby displacing market giants. This is a good strategy that will help them to win a significant market share.
Another huge benefit will be the size of the operation. It is understood that by coming together, the company will act as a one-stop shop whereby customers will be able to get all that they need under the same company. This is as a result of operating as a large-sized company because of the merger. Customers always want to do their transactions under one roof. The substantial investment of AOL in the various programmatic advertising will also work as an excellent benefit for the merger. This is because most marketers would want to automate the buying and selling of multiple ads, this will help the partner business, Time Warner a great deal.
It is worth noting that when these companies merged, their pricing policies became relatively strong enabling them to get more from the ads they offered. Most specifically, when AOL merged with Time Warner, it was noticed that AOL benefited immensely because what it got from each a grew as compared to when it was a single business. AOL is doing better in the main business as the partner in the merger also gained a lot of improvement.
Weaknesses of the Merger
In a situation where the two companies price their products highly, there is a possibility of allocative efficiency which will consequently affect the long-term operation of the merger
On the other hand, by acting like a monopolist, the merger will possibly lead to inefficient production hence inappropriate service to its customers (Arango, 2010). In the long run, the customers will shift to other substitute products in the market leading to a possible collapse of the business. Also, when there is no competition in the market, the merger between AOL and Time Warner will become complacent which leads to low quality and quantity of products and also less investment in other products. This could be as a result of enjoying monopoly power (Bodie, 2005).
One of the most severe disadvantages of the merger between AOL and Time Warner is the issue of becoming jobless by the respective workers as not all the employees of the individual companies could be consumed in the workforce. It should as well be noted that when a company become too large, it can lead the company suffering from diseconomies of scale.
Impact of Merger on Economy
Some of the effects are:
The possibility of cheaper access to financial sources is one of the impacts in an economy. This can only be managed by larger banks that have come together to provide such services. They are considered to be safer as they tend to diversify their risks. There is a general belief that large banks do not fail.
Due to increased economies of scale, the revenue collected shall increase thereby enabling the government to raise funds that it can again use to provide the necessary goods and services to the people.
On the other hand, mergers can lead to a negative impact on the economy in that it can lead to unemployment because when AOL and Time Warner became a single company, most of the workers become unemployed as they were deemed unnecessary due to the concentrated activities (Bodie, 2005).
The possibility of decreased revenue collection because initially the companies were taxed singly thereby the government could raise a lot of revenue but after the merger, the number of companies taxed reduced hence leading to low revenue collection.
It is essential to conclude while giving my opinion that the merger is a fundamental concept in the economy as observed when these two companies merged. What should be done is through regulation to ensure that there are no monopoly practices that are involved in the production, distribution, and even pricing of the products.
Arango, T. (2010). How the AOL-Time Warner merger went so wrong. New York Times, 10.
Bodie, M. T. (2005). AOL Time Warner and the false god of shareholder primacy. J. Corp. L., 31, 975.
Munk, N. (2009). Fools Rush In: Steve Case, Jerry Levin, and the Unmaking of AOL Time Warner. Zondervan.
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