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    Managerial Finance: Corporate Acquisitions

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    Many corporate acquisitions result in losses to the acquiring firms' stockholders. Accordingly, why do firms purchase other corporations? Are they simply paying too much for the acquired corporation? A co-worker asks your opinion. Specifically state the reasons for your argument.

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    Dear student,

    Some corporations buy other corporations to expand its activities and want to attain the objective of becoming the leader in the market. Following are the reasons why the firms purchase other corporations:
    1. To reduce /eliminate competition. If the firm wants to reduce/eliminate competition in the market, then it will purchase the competitor firm in the market and then it will become the leader for the products in the market.
    2. Economy of scale: The combined entity can reduce the fixed cost by eliminating duplicate ...

    Solution Summary

    This solution discusses corporate acquisitions resulting in losses to the acquiring firms' stockholders.