Mergers are quite familiar as far as commercial activities are concerned. In reality, it is possibly secure to articulate that companies of similar size or another link forces day by day as result of market share and the augmented efficiency such provisions offer. It will be recognized that most of the mergers are not casual but through the merging of companies important waves are sent to the economy which in turn change the technique in which the business is actually carried out within the whole firms. It will be realized that one of the companies in the United States that has truly participated in mergers is Sears. Kmart and Sears merged back in 2005 and the new-fangled corporation was by then renowned to be among the leading retailers in the United States by having 3450 stores. Since then there has been some notable impacts on both firms.
The mergers’ field has significantly stretched out over the past century (Gaughan, 1996). It will be realized that mergers used to be a typical business phenomena in the United States but it has greatly changed recently where now mergers are commonly used by many corporations allover the world in their view of attaining and expanding their corporate goals (Layne, 2006). This was in point of fact the case in the most recent wave of mergers of the periods 1990s and early 2000s where the Europe deals were as good as to those in U.S. additionally other markets for instance the Asian economies also saw much mergers activity to take place and also corporate restructuring forms. Sell-offs, restructuring and mergers turned out to be more familiar in the Asian continent where countries like South Korea and Japan gradually began the practice of deregulating their economies in the view of dealing with declines in that truly prevailed (Gaughan, 2005).
A merger essentially refers to an amalgamation of two companies where only one of the companies sails through (Sherman & Hart, 2006).It will be realized that the merged corporation truly stops to exist. The acquirer then retains the assets of the targeted company and in most cases it assumes its liabilities. In other cases we may have amalgamation of two corporations that are actually of the similar size where two companies stop to exist due to the merger and a new corporation is created instead (Mueller, 1989). It will be documented that a similar case occurred in 1986 when UNISYS was then formed following the combination of Sperry and Burroughs.
It will be further acknowledged that the merge between Sears and Kmart helped in improving their market position. The new entity that was formed as result of the merge between Sears and Kmart realized about $55 billion sales that made it to be the second largest retailer in the US creating a good market position to face its competitors. It also led to reduction in costs and strong management within the firms. This helped in enhancing economies of scale within the firm due to the fact that was a reduction in the average costs. It is also good to note that lower average costs essentially encourage lower prices to be passed to the consumers (Vachon, 2007). The synergy led to reduction of in the purchasing costs because they a greater bargaining power. Mergers enable international competition. When Sears and Kmart merged they could now be able to deal with threats from their rival multinationals thereby competing with them in the international markets.
The combination of the two firms enhanced greater investment in their research and development. They were able to obtain more profits that were large enough to finance most of the risky investments. This in turn has led to the production of high quality products that suite the consumers. Studies reveal that mergers lead to greater efficiency and prevent companies from closing down. Therefore the combination between Sears and Kmart clearly helped in protecting the future of the two companies by ensuring that they struggled to stay afloat. Through merging, the two firms were able to diversify where they could share information that was precisely applicable in the operation of the business (McLaughlin, 1998).
On the other hand, the merger between the two firms seemed to have a number of negative impacts mainly on Sears. Following the merge, the condition of the Sears stores has been abandoned and the expenditures on capital are in fact lower than the depreciation. This has purely resulted to destitute shopping experience. In addition to this, the competitors as a consequence have snatched a muscular advantage of drawing the customers for the reason that their capital expenditures subsist distant beyond the depreciation.
The stock turnover of Sears has in fact declined in the last five years and is at the moment lower than that of the retailers selling same goods (Clifford, 2010). This has actually led to a decrease in the revenues generated by the firm. This has further resulted to an increased risk of discounting older merchandise so as to move out of the shelves. The merger has also made the revenues that are obtained from services rendered to be lower than the expected value which signifies that Sears misses the chance to sell its extended service plans. It has also led to negative free cash inflows within the firm that has prevented it from investing in the turnaround projects. The profitability levels of Sears have dramatically fallen reducing its market share making it unable to face its rival competitors (Clark, 2013).in conclusion mergers should be encouraged within the growing economies as they help business to go global and be able to compete in the international markets thereby increasing their market shares and further necessitates more revenues both to the business and the government.