What are the Financial Problems of Merger and Consolidation?

Financial Problems of Merger and Consolidation: Entrepreneurial Marketing in a merger is when two or more corporations come together but only one of the corporation or policy or contract stays exists afterward. For example, if company X and Company Y merge to and only company X or Y exists afterward. While In consolidation, when two or more corporations come together to form a completely new corporation or policy or contract.

Here the expiration of Financial Problems of Merger and Consolidation.

After merging and consolidation, companies face several financial problems. The liquidity of the companies has to establish afresh. The merging and consolidating companies pursue their financial reports or policies when they are working independently. Some adjustments are required to make in financial planning and policies so that consolidated efforts may enable to improve short term and long term finances of the companies.

Merger and Consolidation both are different from each other but some Financial Problems of Merger and Consolidation, the companies are following discussed below;

Cash management:

The Liquidity Problem is the usual problem faced by acquiring companies. Before merger and consolidation, the companies had their method of payments, cash behavior pattern, and arrangements with financial institutions. The cash pattern will have to adjust according to the present needs of the business.

Credit policy:

The credit policies of the companies are unified so that the same terms and conditions may be applied to the customers. If the market areas of the companies are different, then the same old policies may be followed. The problem will arise only when operating areas of the companies are the same and the same credit policy will have to pursue.

Financial planning:

The companies may be following different financial plans before merger and consolidation. After merger and consolidation, unified financial planning follows. The divergent financial control will unify to suit the needs of acquiring concerns. The methods of budgeting and financial controls may also be different.

Dividend policy:

The companies may be following different policies for paying dividends. The stockholders will be expecting higher rates of the dividend after merger and consolidation on the belief that financial position; and, earning capacity have increased after combining the resources of the companies. This is a ticklish problem and management will have to devise an acceptable pay-out policy. In the earlier stages of merger and consolidation, it may be difficult to maintain even the old rates of dividends.

Depreciation policy:

The companies follow different depreciation policies. The method of depreciation, the rate of depreciation, and the amount to take to revenue accounts will be different. After merging and consolidation, the first thing to decide will be different. After merger and consolidation, the first thing to decide will be about the depreciable and non-depreciable assets. The second will be about the rate of depreciation. Different assets will be in different stages of use and appropriate amounts of depreciation should decide.

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Differences between Statutory Merger and Consolidation:

The following differences below are;

1. In a statutory merger, one of the two parties retains its entity and another party merges into the other by losing its entity. While statutory consolidation, when two parties come together, both of their legal entities cease to exist, and a new identity creates.
2. In a merger, a union whereby one or more existing corporations and absorbed by another corporation that survives and continues the combined business. While consolidation, a union of two or more existing corporations to form a new corporation called the consolidated corporation
3. In a merger, the assets and liabilities of the merging company (one that loses its identity after the merger) become the property of the acquiring company (one that retains its identity intact even after the merger). While consolidation, the assets, and liabilities of both of the companies become the assets and liabilities of the larger company that forms after consolidation.
4. In a merger, all constituent corporations, except the surviving corporation, dissolve. While consolidation, all constituent corporations dissolve and absorb by the new consolidated enterprise.
5. In both mergers and consolidation, the federal and state government can stop the process of merger or consolidation by using anti-trust laws; if they find that by merger or consolidation; a company (new or old) gets an unfair advantage over others or can affect the market by becoming a monopoly.