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Pros and Cons of Mergers

A look at the pros and cons of mergers. Are mergers in the public interest or are mergers just beneficial for top executives and shareholders? When looking at mergers it is important to look at the subject on a case by case basis as each merger has a different possible benefits and costs. These are the most likely advantages and disadvantages of a merger.

Pros

1. Network Economies. In some industries, firms need to provide a national network. This means there are very significant economies of scale. A national network may imply the most efficient number of firms in the industry is one. For example, when T-Mobile merged with Orange in the UK, they justified the merger on the grounds that:

“The ambition is to combine both the Orange and T-Mobile networks, cut out duplication, and create a single super-network. For customers it will mean bigger network and better coverage, while reducing the number of stations and sites – which is good for cost reduction as well as being good for the environment.”

2. Research and development. In some industries, it is important to invest in research and development to discover new products / technology. A merger enables the firm to be more profitable and have greater funds for research and development. This is important in industries such as drug research.

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