Unicon Ltd. and Nahata Communications provide Cable T.V. network in adjacent areas of Delhi. After some time the market was slowly taken over by big cable companies. Both Unicon Ltd. And Nahata communications understood the competition and decided to come together so as to increase their markets share. This strategy helped them in cost saving through economies of scale as they could cover more areas now. It led to the overall growth of both the companies.[CBSE Sample Paper 2016]
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a. A market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base. b. Benefits: 1.Synergy Synergy is the most essential component of mergers. In mergers, synergy between the participating firms determines the increase in value of the combined entity. In other words, it refers to the difference between the value of the combined firm and the value of the sum of the participants. Synergy accrues in the form of revenue enhancement and cost savings. 2. Acquiring new technology To remain competitive, companies need to constantly upgrade their technology and business applications. To upgrade technology, a company need not always acquire technology. By buying another company with unique technology, the buying company can maintain or developa competitive edge. 3. Improved profitability Companies explore the possibilities of a merger when they anticipate that it will improve their profitability. 4. Acquiring a competency Companies also opt for Merger and Acquisition to acquire a competency or capability that they do not have and which the other firm does. 5. Entry into new markets Mergers are often looked upon as a tool for hassle-free entry into new markets. Under normal conditions, a company can enter a new market, but may have to face stiff competition from the existing companies and may have to battle out for a share in the existing market. 6. Access to funds Often a company finds it difficult to access funds from the capital market. This weakness deprives the company of funds to pursue its growth objectives effectively. In such cases, a company may decide to merge with another company that is viewed as fund-rich. 7. Tax benefits Mergers are also adopted to reduce tax liabilities. By merging with a lossmaking entity, a company with a high tax liability can set off the accumulated losses of the target against its profits gaining tax benefits.