First, let me apologize, I lost my voice for much of this week and this is definitely not the best audio quality.  I am happy with the content however and I edited out most of my coughs :)

The merger and acquisition market is part of the market for corporate control includes mergers and acquisitions, proxy fights,  divestitures, spin-offs, carve-outs.  Some of these deals are driven by tax reduction strategies, some by restructurings, some by a desire to retire, and others are pure valuation plays.  But whatever the reason, the market is a big player (creating large fees for investment bankers as well) in the world of business.

Why is the market for corporate control so important?  

1. It creates value by getting assets to higher valued users.

2. It disciplines poor managers.

3. It pressures managers (and boards) to keep stock prices high and to look out for shareholders.

4. It allows firms to quickly bring products to market

5. It is a part of tax reduction strategies.

How a merger can create value

1. Economies of scale--this allows fixed costs to be spread over higher revenues.

2. Economies of vertical integration (lower Transaction costs)

3. Combining complementary assets (drug company and sales force) leads to increased revenues

4. Synergy: the idea that assets work better together (1+1=3)

5. Marketing or distribution

6. Market power--Esp with horizontal mergers

7. Elimination of poor management

8. Access to a. materials    b. customers, c. capital

9. Lower taxes

10. Cost cutting