What is the effect of merger?

synergy effect of mergers means when two businesses merge together than the value or the income of the merged business will be more than that of the individual businesses. It is not just the combined earnings or value of the individual businesses rather the earnings and value increases because the loopholes of one is overcome by the strong areas of other. This disproportionate increase in value is called synergy.

Ex: production person combines with marketing person works wonder.

co. A intends to take Co. B, so here value synergy can be indicated as:

NPVab =Vab-(Va+Vb)

NPVab=Value synergy

Vab= Value of merged firm

Va=Value of co. A

Vb=Value of co. B