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THE SYNERGISTIC EFFECTS OF MERGERS ON THE PAKISTANI COMPANIES IN THE PAST YEARS

BACKGROUND AND RATIONALE

In the past few years, companies in Pakistan have merged into one another and to foreign companies in order to improve the companies performance and profitability. Two banks merged recently. Last January 1 st, 2008, PICIC Commercial Bank Limited Merged with NIB Bank Limited. On the same date, Pakistan Industrial Credit and Investment Corp., Ltd also PICIC, merged with NIB Bank. (Karachi, 2008)

For the year 2007, there were five companies that merged. Those were Guardian Modaraba with B.R.R. International Modaraba, Crescent Standard Investment Bank Ltd with Innovative Housing Finance Ltd., Dewan Hattar Cement Limited to Dewan Cement Limtied. Suzuki Motorcycles Pakistan Ltd. Merged with PAK Suzuki Motorcycle Co. Ltd.. International Housing Finance Ltd. Merged to KASB Bank Limited. (Karachi, 2008)

For the past year, there have been a number of companies that merged to other companies. On the year 2006, fourteen companies merged to other companies. This shows a considerably high rate of merges in the country.

Based on the previous assessments of the companies, companies welcome mergers to their shares and to their stocks as one way of providing betterment and growth to its performance. One of the options of companies is to merge with other companies in order to increase the capital structure, most especially profitability. (Karachi, 2008)

Studies made previously showed that mergers make a significant part in restoring the company, and results showed that merging brings benefits to shareholders, managers and creditors of less established firms.

The rationale of this study is to basically analyze the effects of merging to other companies to that particular company. The study wants to find out whether merging with other companies bring positive or negative effects to the company.

RESEARCH QUESTIONS:

This study will address the following questions:

1. How many companies merged last 2003 up to 2008? 2. How many of the companies which merged last 2003 to 2008 have separated from each other? 3. What are the reasons of merging to other companies? 4. What are the reasons of separating from a previously merged company?

5. What are the overall impacts of merging of one company to the other?

RESEARCH OBJECTIVES:

This study will answer the following objectives:

1. Determine the number of companies that merged last 2003 up to 2008. 2. Determine the number of companies which merged last 2003 to 2008 have separated from each other. 3. Determine the reasons of merging to other companies. 4. Determine the reasons of separating from a previously merged company. 5. Identify the overall impact of merging of one company to the other.

METHODOLOGY

This study will be basically descriptive in nature since it will identify the companies that merged and separated from each other for the past five year. The count will start from year 2003 up to year 2008. The second part of the study will then be analytical because it will analyze the reasons behind the merging of the companies. At the same time it will also analyze the reasons why other companies which previously merged, ceased to merge with each other.

This study will identify the overall impact of merging to the Pakistan companies. The study will use statistical data obtain from websites, stock exchange, and other resources. There may also be interviews that will be conducted on the companies to be able to get raw inputs from them.

The study will primarily include banks, mobile companies, telecom companies, and other established companied in Pakistan.

Moreover, this study will focus on profitability. Profitability of both companies before and after the merge will be shown in a table, and will be compared to each to each other, to fully recognize the effect of merging to profitability of the company.

A study made in Chicago stated that if the merging firm produces a single product, the merger synergies can reduce marginal cost if any of its other products. If it doesnt produce monopoly, it would, nonetheless affect the price of the capital costs of both companies. The capital costs will be reduced to a considerable percentage after the merge. (Werden, 2001)

This study will also use questionnaires which will be given out to selected companies. The questionnaires will be standardized for the purpose of statistics.

REFERENCES:

Karachi,

Stock

Exchange.

(2008)

[Online

Source].

Available

At:

http://www.kse.com.pk/

Weden, G. Froeb, L, and Tschantz, S. (2001) The Effects of Merger Synergies on Consumer of Differentiated Products. [Online Source] Available at:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=276372

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