Mergers inside a corporation's structure -A case study of the motives behind merging subsidiaries and the effects it brings

Abstract

Background and Problem: Mergers and acquisitions (M&A) are something that can be read about almost every day and are common in today’s business world. Since the 1980’s, there has been an upward trend for M&As worldwide and companies have been using M&As to gain advantages. After an acquisition is accomplished, whether new or old, companies are faced with a decision to merge their acquired companies to form one legal entity or to keep their subsidiaries independent. There are both advantages and disadvantages of creating one legal entity such as corporate culture issues, organizational change and the creation of synergies. Aim of study: This thesis has explored mergers between subsidiaries and the motives a specific corporation had for merging their subsidiaries. The thesis has also explored the financial and organizational effects these mergers have had. Finally, the thesis compares previous merger literature to see if it also applies to merger done between subsidiaries within the same corporate structure. Methodology: This thesis has explored mergers through a case study at a large Swedish corporation which is currently undergoing this process. Structured interviews have been used to form the empirical chapter. Analysis and conclusion: In the researched mergers three main motives have been found for merging corporation’s subsidiaries. These are Reducing costs, increasing the financial reporting quality and finally increasing the internal control. There have been both positive and negative financial and organizational effects due to these mergers. There has been evidence that previous research correlates to some extent, mainly in the financial effects and the effects on the employees due to the organizational changes.