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Why do firms purchase other corporations

Research corporate acquisitions using your text, course materials, and Web resources and then answer the following questions:

1. Why do firms purchase other corporations?
2. Do firms pay too much for the acquired corporation?
3. Why do so many acquisitions result in shareholder losses?

Please include four references.

Solution Preview

Firms purchase other companies for various reasons. First of all, firms acquire other corporations to obtain synergies in terms of costs or revenues. For example, if a firm purchases another company in its industry, it allows the company to expand its manufacturing or distribution/marketing capabilities by increasing the scale of operations and thus, obtain synergies on the basis of economies of scale. Firms also acquire other companies to diversify its product, customer or market base and enter new related or unrelated product, customer or market categories. Firms also acquire other companies for horizontal or vertical integration and thus, enhance its competitive position or control in the industry. To summarize, the purpose of any acquisition is to enhance the competitive ...

Solution Summary

Research Corporate acquisitions: Why do firms purchase other corporations; do they pay too much; why some result in shareholder losses