This paper investigates and analyzes two particular terms: "synergy" and "de-merging." The investigation involved finding and choosing firms among those that had merged to determine the reasons why the mergers took place. The analysis comes in when the terms "synergy" and "de-merger" are applied to two specific situations.
The structure of the paper will be: a) define "synergy" and "de-merging," b) analyze the theory of synergy by analyzing the derived benefits of MCIWorldCom, c) analyze the benefits of de-merging by discussing the situation of Cordiant plc, and d) presenting a conclusion that determines the validity or invalidity of the two terms.
In the purest scientific definition, synergy refers to the physical result of the combining of two disparate elements. The most typical example of a "synergistic" product would be water, which is the combination of hydrogen and oxygen.
The term has been taken up by the business world and financial writers to refer to the perceived increase in valuation of assets when two companies merge. Mathematically, the term "synergy" can be understood by the simple equation 2 + 2 = 5. Alternatively, put another way, the sum is greater than the total of its parts.
The mega-mergers of the past few years are more than a byproduct of economic change; they are themselves becoming a powerful agent of further transformations, changes that will redefine the nature of markets and competition. This new agent is in itself a concept of synergy.
Over the past decade, mergers and acquisitions have created an atmosphere in which big companies create synergy by merging in the hopes of expanding market share. Implied in the term "synergy," finally, is a concept of logic. The deal must not only be synergistic, it must be logical.
In 1995, Investment Banker Peter J. Solomon discussing synergy in mergers told a financial reporter: "The goal in any strategic merger is to build s...