Entering a Merger and Organizational Form
Firms merge to gain market power, tax advantages of gaining a loss making firm, efficiency, increasing market share and diversification among other factors. Firms will merge in order to gain market power, market power increases where firms that merge are in the same industry and produce the same products in the market and when they merge they form a monopolistic firm which controls the prices and the quantity produced. The firms will also merge as a way to increase their competitive advantages over their rivals and this makes the new firm a market leader, however this may not be the case where government policies may restrict firms to form monopolistic market forms where the firms control the prices and quantity produced. Firms will also merge as a way to smooth earnings, smooth earning results into a smooth stock price over time and therefore investors are attracted to invest in the companies' stocks. When two firms merge their earnings and stock prices are more stable and this increases investor confidence and therefore realize increased capital base from investors equity. Proposed merger has to be reported to the Federal Trade Commission and the Department of Justice. When these agencies receive the filing, they have 30 days to conduct a preliminary pre-merger investigation, which puts the merger on hold. After the agencies complete the review, they can find in favor or the transaction or against it. According to the Federal Trade Commission, if one of the agencies requests additional information from the companies, they must comply. If the parties don't comply, provide the information, or if the agencies don't approve the merger, it cannot go through.
A merger occurs when two companies are joined and the resulting company takes the form of the company who purchased the other firm. Why do you think Katrina's Candies would want to buy another company? We have to look carefully at expansion as a motive for merger and acquisition and make sure that it really does maximize the wealth of the Katrina's Candies.