Ebay And Paypal Merger Analysis

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Before we delve into the analysis of the eBay and PayPal demerger we first take a look at the different types of Mergers and in which category did eBay and PayPal merger fall into. We will also look into as to what was the acquisition motive, what led to the demerger and whether the synergies were attained or not.
Merger is an amalgamation of 2 companies such that one company retains its corporate existence and the other one loses it corporate existence. The survivor company inherits the liabilities and assets of the other one. In effect one company completely absorbs the other one and assumes all the privileges and liabilities of the merged corporation.
A merger may be also be understood in simpler terms as:
M Mixing
E Entities
R Recourses
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Market Extension Mergers
These mergers happen between two companies that operate in separate markets but offer similar products. The main purpose of such mergers is geographical diversification and hence a way for companies to enhance their consumer/client base.
5. Product Extension Mergers
Product extension mergers are the ones where the two merging companies deal in the same market but offer products/ services which are related to each other. The product extension merger enables companies to reduce the supplier power and gain access to a larger set of clients/ consumers and hence generate higher profits.
Both product extension mergers and market extension mergers can themselves be categorised as vertical or horizontal mergers.
Why do companies Merge?
2+2=5. In short this is the philosophy behind mergers. In simple words the main objective of a merger or an acquisition is to create a shareholder value that is over and above the sum of the two companies. This usually translates into superior financial returns in the short and/or long run. This is achieved by companies in the various manners. Some of them
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It was also aimed at eBay’s willingness to expand into the domain of online payments services.
However the company PayPal remained an independent fully owned subsidiary of eBay but was independent in its operations and formulating strategy for its growth. . If we try putting all the information into the framework given below, we can easily see whether synergies were attainable or not. eBay did not have exert much of control over it other than Financial Controls with slight controls over its management In the framework given below degree of integration represents the type of control parent body has over the new one. In this we can easily see that eBay did not exercise much control other than financial and some control in the board of directors. PayPal was free to pursue its own strategy as per its own wish. While the aim for eBay was economies of scale and market entry into payment systems.
We can easily see in through the framework that the degree of acquisition was not in alignment with the acquisition motive of the companies. Hence a demerger was inevitable after the PayPal grew stronger and

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