New technology is also making it easier for companies to diversify as different industries come to rely on common technologies. Microsoft, for instance, is busily diversifying into cable and mobile telecommunications as well as WebTV. The US software giant has a $ 56bn. equity stake in AT&T, which recently bought Media One for $ 57bn. Under the deal, Microsoft will succeed in introducing its recently-launched cable television software into millions of homes in the US and UK.
Not all mergers, however, are the result of global economic trends, political change or technological innovation. BMW’s takeover of the Rover Group injected much needed investment into the struggling UK car manufacturer whilst extending BMW’s product range. And when the UK pharmaceutical firm Zeneca merged with Swedish drug company Astra, the new company started life with strong combined R&D capabilities, further strengthened by the world’s best selling drug Losec in its portfolio of products.
Despite all these potential benefits and their promise of competitive advantage, mergers and acquisitions are not risk-free ventures.
Such alliances are more than just financial agreements; they also involve the coming together of different corporate and, in many cases, national cultures. This can have a destabilising effect on a workforce and may mean projected efficiencies are not delivered. Daimler and Chrysler, for example, face the challenge of integrating two very different corporate and national cultures.
A further destabilising effect is the prospect of redundancies as companies look to reduce their payroll by restructuring duplicated functions such as marketing and administration. Although shareholders are lured by such short-term savings, there is little evidence to show that mergers and acquisitions actually add long-term value to company performance.
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