Synergies Operating Synergies Are Commonplace in Mergers,

Synergies Operating synergies are commonplace in mergers, because there can be substantial synergies resulting from them. Administrative divisions that duplicate each other's work can be reduced in order to produce a more efficient organization. Another example would be when a company is able to utilize an existing asset (like a salesforce) to improve the new company's business. An example of this can be found with the mega-merger between Anheuser-Busch and InBev.

The two companies were able to combine production operations, but also use each other's sales forces around the world to enhance the ability of the combined firm to sell the company's core brands more effectively in all markets. Financing synergies such a lowering transaction costs can occur when a combined entity has improved bargaining power, allowing it to acquire key inputs for cheaper, or can otherwise find ways to lower transaction costs, perhaps with a reduced sales force that results in a lower cost of attracting new customers.

The United-Continental merger, by combining rewards programs in particular, lowered United's cost of attracting new customers because Continental customers were at that point a captive audience. The combined airline also has lower cost of access at key airports and for jet fuel as well. An example of differential efficiency might be the Sprint takeover of Nextel, where the former's greater size and experience enabled them to service Nextel customers at a lower cost. The firm conducting the takeover (Sprint) is leveraging its superior abilities to gain from the takeover.

Increased market power may be controversial, but as long as it is within the bounds set for industry concentration is a perfectly legitimate reason for conducting a merger. Struggling industries often see consolidation as a means of maintaining competitiveness. The United-Continental merger is actually a good example of this. 2. The net present value of the project (not knowing the cost of the company today) is calculated as follows: Year 0 1.