Limitations of Mergers

Mergers suffer from the following limitations:

1. Empirical studies have shown that growth rate of the merged companies is generally lower than that of merging companies.

2. If executives of the absorbed company are not placed at senior ranks in the new company, it will lower third morale and decrease productivity.

3. Merger can result in social ills like monopoly, concentration of economic and social power, restricted supply, high prices etc.

Types of Mergers: Mergers can be of the following types:

(a) Horizontal merger: When firms in same business or production process combine together, it is known as horizontal merger.

(b) Concentric merger: This is similar to horizontal merger. It is a merger of firms that are related by product. market or technology.

(c) Vertical merger:  When firms producing complementary products join together, it is known as vertical merger. When garments manufacturing unit takes over a dyeing unit, it is backward vertical merger.

(d) Conglomerate merger: When firms not related with respect to product, market or technology combine together, it is known as conglomerate merger, for example merger of footwear company with textile company.

Effective Mergers:

Mergers require restructuring of the firms in terms of financial arrangements, organization structures and plans. It is therefore, necessary that detailed Pre -merger and post- merger plans are made, executive responsibilities are defined and management information systems are developed.

1. Specify the merger objectives. Especially earning objectives.
2. Specify the gains of shareholders of the combining units.
3. Be sure that the management of the acquired company is or can be made competent.
4. Certify the existence of important dovetailing resources but do not expect perfection.
5. Initiate the process of merger with active involvement of the chief executives.
6. Clearly define the business that the company in.
7. Identify and check on the strengths, weaknesses and key performance factors for both the combining units.
8. Anticipate problems and discuss them with the other company to create a climate of trust.
9. Be sure that the merger does not threaten the present man agent team.
10. People should be of prime consideration in planning the merger and restoring the organization.

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