Scribd
Upload
97 views2 pages

Introduction To Merger and Acquisition

Mergers and acquisitions involve the combination of companies. A merger occurs when two companies combine to form one new entity, with both ceasing to exist separately. An acquisition is when one company takes control of another but they remain separate. Mergers can happen through absorption, where one company absorbs the other, or consolidation, where they form an entirely new combined company. Acquisitions do not combine the companies but one takes ownership and control of the other. The terms merger and acquisition are sometimes used interchangeably but technically refer to different types of business combinations.

Uploaded by

deepak_shukla73
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
97 views2 pages

Introduction To Merger and Acquisition

Mergers and acquisitions involve the combination of companies. A merger occurs when two companies combine to form one new entity, with both ceasing to exist separately. An acquisition is when one company takes control of another but they remain separate. Mergers can happen through absorption, where one company absorbs the other, or consolidation, where they form an entirely new combined company. Acquisitions do not combine the companies but one takes ownership and control of the other. The terms merger and acquisition are sometimes used interchangeably but technically refer to different types of business combinations.

Uploaded by

deepak_shukla73
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

INTRODUCTION TO MERGER AND ACQUISITION

MERGERS
A merger occurs when two or more companies combines and the resulting firm
maintains the identity of one of the firms. One or more companies may merger
with an existing company or they may merge to form a new company.
Usually the assets and liabilities of the smaller firms are merged into those of
larger
firms. Merger may take two forms-
1.
Merger through absorption
2.
Merger through consolidation.
Absorption
Absorption is a combination of two or more companies into an existing
company. All
companies except one loose their identify in a merger through absorption.
Consolidation
A consolidation is a combination if two or more combines into a new company.
In this form of merger all companies are legally dissolved and a new entity is
created. In consolidation the acquired company transfers its assets, liabilities
and share of the acquiring company for cash or exchange of assets.
ACQUISITION
A fundamental characteristic of merger is that the acquiring company takes
over the
ownership of other companies and combines their operations with its own
operations.
An acquisition may be defined as an act of acquiring effective control by one
company over the assets or management of another company without any
combination of companies
TAKEOVER
A takeover may also be defined as obtaining control over management of a company by
another company.
DISTINCTION BETWEEN MERGERS AND ACQUISITIONS
Although they are often uttered in the same breath and used as though they
were
synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the
new owner,
the purchase is called an acquisition. From a legal point of view, the target
company
ceases to exist, the buyer "swallows" the business and the buyer's stock
continues to be
traded.
In the pure sense of the term, a merger happens when two firms, often of
about the same
size, agree to go forward as a single new company rather than remain
separately owned
and operated. This kind of action is more precisely referred to as a "merger of
equals."
Both companies' stocks are surrendered and new company stock is issued in its
place. For
example, both Daimler-Benz and Chrysler ceased to exist when the two firms
merged,
and a new company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals don't happen very often.
Usually, one
company will buy another and, as part of the deal's terms, simply allow the
acquired firm
to proclaim that the action is a merger of equals, even if it's technically an
acquisition.
Being bought out often carries negative connotations, therefore, by describing
the deal as
a merger, deal makers and top managers try to make the takeover more
palatable.
A purchase deal will also be called a merger when both CEOs agree that joining
together
is in the best interest of both of their companies. But when the deal is
unfriendly - that is,
when the target company does not want to be purchased - it is always
regarded as an
acquisition.
Whether a purchase is considered a merger or an acquisition really depends on
whether
the purchase is friendly or hostile and how it is announced. In other words, the
real difference lies in how the purchase is communicated to and received by
the target company's board of directors, employees and shareholders

You might also like