Companies Merging

COMPANIES MERGING

Olga Sek

American InterContinental University

BUSN-310

Jacob Carroll

January 28, 2012

Abstract

In general Companies merge for more profit. However, there are many other reasons as well such as trying to cut the price and that’s usually when companies get together with their clients or suppliers. Sometimes companies merge for the market power in order to limit quantity of competitors. There are two different types of merges which is vertical and horizontal. In this work below are two different types of merges. First example of British and German travel companies have merged as a horizontal and Schlumberger and Smith International as a vertical merges.

Why do companies merge? Merging occurs when two companies trying to create the value on the stock market. Usually the company that is bigger and more profitable is dominating and approaches the other company with the similar interests.  When companies merge they can be more competitive because they can massively take the market over by providing the lowest price and still be profitable.  Usually one of the companies is not progressing well on the market, which causes the merging. In other words, the well progressing company is helping out just like it happened with two travel companies in Europe.

For example, in 2003, the head of travel British company, My Travel, Mr. Wilson, wanted to resign from the duty when Philip Jansen was going to take over his place. (The Telegraph, 2003)Later on, according to article by “The New York Times”, there are two Europe based competitive travel companies that merged in 2007. British and German travel companies merged and the new born company will take Thomas Cook’s name, which is German because he is taking 52% ownership, meaning that the British share is 48%. As a result, the British Company reducing risk of loosing money due to economy crisis and get the better management from Thomas Cook’s group.  (The New York Times, February 12, 2007)

In my personal opinion, I think that the British Company was almost falling to bankruptcy. Instead of bankrupt the whole company Mr. Wilson came up with alternative decision to save the company by merging it with German Company. However, according to  Simon Bowers’s article, as a result several years later of merging, Thomas Cook’s group spend so much money on merging two companies, which is £255m after during first three years  and £208m additionally one year later. According to another source “The Economist”, newspaper, Thomas Cook borrowed another £100m from the bank. Basically, Thomas Cook has such a huge debt from many different investors, so he cannot even bunkrcrupt anymore because he is obligated. As a result, the company has been changing many successful managers and currently bankers want to give another last lease with the hope to compensate lost. Overall, the situation is not the best for Thomas Cook but economic and political situation all over the Europe is not good which still forcing competitors such as Thomson Holidays and some other companies off market as well, so in my personal opinion Thomas Cook still can recover as the economy in Europe will gets better. In addition, I think that traveling is one of the first industries that gets affected by the economy crisis in general, as well as it gets very profitable when the economy at its best situation due to its elasticity.