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Explain how cost synergies benefit the companies involved in a merger or acquisition depending upon the...

Explain how cost synergies benefit the companies involved in a merger or acquisition depending upon the type of synergy being discussed. Also, provide actual examples from the business world today and if you were a CFO of a Fortune 500 company what would you be looking for in prospective targets?

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Answer #1

Benefits of cost synergy involved in merger and aquisition:

1. It will leads to reduce the cost of production per unit, so that price per unit can be set lowerly.

2. Due to cost reduction per unit it will leads to competative price advantage.

3. SInce, competative benefecial price it will leads to increase in the market share.

4. It will also leads to elimination of small small rivals in the market.

Example to be looked for in prospective targets:

1. Market share advantages.

2. Distribution facilities when there is lower for transferee company.

3. Cost reduction

4. Absorpion of technology.

5. Tax advantages

6. Expanding in to the multi national markets.

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