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What are some valid economic justifications for mergers?
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Some of the valid economic justification for mergers is that it helps the two companies who are undergoing merger increase the wealth of the shareholders.The two companies which are consolidating in business result in synergies which increase the value of the newly formed business organisation. There are two types of synergies one is the revenue Synergy which is improving the company's revenue generation ability and the other is cost Synergy which means that there is a reduced in the company's cost structure.
The Other motive for merger is diversification in which a company uses merger to diversify its business operation by entering into the new markets or offering new products or services which diversify the risk related to the company. The shareholders of the company are not always agreeable in the situation of merger because it increases the risk rating to the business operation.
Merger increases the financial capability of the operation, which helps the company to get more financial capability in order to secure higher financial capacity and employment in business development.
Merger also help the company in substantial carry forward tax losses in order to generate significant taxable income. After the merger has happened the total tax liability of the the merged company will be much lower than the tax liability of the individual profitable company.
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