merger and acquisition

Topics: Mergers and acquisitions, Strategic management, Merger integration Pages: 7 (1856 words) Published: February 23, 2014
Merger and acquisition both are strategic decision and an aspect of corporate strategy. One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind merger and acquisition. Most histories of merger and acquisition begin in the late 19th U.S. However, mergers coincide historically with the existence of companies. In 1708, for example, the East India Company merged with an erstwhile competitor to restore its monopoly over Indian trade. In 1784, the Italian Monte dei Paschi and Monte Pio banks were united as the Monti Reuniti. In 1821, the Hudson's Bay Company merged with the rival North West Company. Merger

The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. Basically, when two companies become one. This decision is usually mutual between both firms. A merger can happen when two companies decide to combine into one entity. According to Webster’s Business Dictionary-

“A blending of two or more companies by acquisition, in which one company purchases others and they are absorbed into the parent company, or by consolidation, in which a new corporation is formed to absorb the merging companies”. Acquisition

An acquisition or takeover is the purchase of one business or company by another company or other business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies remains independently. "Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger occurs when a privately held company buys a publicly listed shell company, usually one with no business and limited assets.

Distinction between Merger and Acquisition
The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects particularly in terms of the ultimate economic outcome, although it has not completely disappeared in all situations. From a legal point of view, a merger is a legal consolidation of two companies into one entity, whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner in which case the target company still exists as an independent legal entity controlled by the acquirer. Either structure can result in the economic and financial consolidation of the two entities. In practice, a deal that is an acquisition for legal purposes may be euphemistically called a "merger of equals" if both CEOs agree that joining together is in the best interest of both of their companies, while when the deal is unfriendly that is, when the target company does not want to be purchased, it is almost always regarded as an "acquisition".

Different types of Merger and Acquisition
The merger and acquisition process itself is a multifaceted which depends upon the type of merging companies. a. A horizontal merger is usually between two companies in the same business sector. The example of horizontal merger would be if a health care system buys another health care system. This means that synergy can obtained through many forms including such as; increased market share, cost...
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