Cash[ edit ] Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the indirect control of the bidder's shareholders. Stock[ edit ] Payment in the form of the acquiring company's stock, issued to the shareholders of the acquired company at a given ratio proportional to the valuation of the latter. They receive stock in the company that is purchasing the smaller subsidiary.
The following will review some of the different kinds of financial transactions that occur when companies engage in mergers and acquisitions activity.
In a mergerthe boards of directors for two companies approve the combination and seek shareholders ' approval. After the merger, the acquired company ceases to exist and becomes part of the acquiring company.
For example, in a merger deal occurred between Digital Computers and Compaq whereby Compaq absorbed Digital Computers. In a simple acquisitionthe acquiring company obtains the majority stake in the acquired firm, which does not change its name or legal structure.
An example of this transaction is Manulife Financial Corporation's acquisition of John Hancock Financial Services, where both companies preserved their names and organizational structures.
A consolidation creates a new company. Stockholders of both companies must approve the consolidation, and subsequent to the approval, they receive common equity shares in the new firm.
For example, in Citicorp and Traveler's Insurance Group announced a consolidation, which resulted in Citigroup. In a tender offerone company offers to purchase the outstanding stock of the other firm at a specific price.
The acquiring company communicates the offer directly to the other company's shareholders, bypassing the management and board of directors. While the acquiring company may continue to exist — especially if there are certain dissenting shareholders — most tender offers result in mergers.
In a purchase of assets, one company acquires the assets of another company. The company whose assets are being acquired must obtain approval from its shareholders. The purchase of assets is typical during bankruptcy proceedings, where other companies bid for various assets of the bankrupt company, which is liquidated upon the final transfer of assets to the acquiring firm s.
In a management acquisition, also known as a management-led buyout MBOthe executives of a company purchase a controlling stake in a company, making it private.
Often, these former executives partner with a financier or former corporate officers in order to help fund a transaction. For example, inDell Corporation announced that it was acquired by its chief executive manager, Michael Dell.
What's the Difference Between a Merger and an Acquisition?
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. A merger occurs when two separate entities usually of comparable size combine forces to create a new, joint organization in which — theoretically — both are equal partners.
For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.
An acquisition refers to the purchase of one entity by another usually, a smaller firm by a larger one. A new company does not emerge from an acquisition; rather, the acquired company, or target firmis often consumed and ceases to exist, and its assets become part of the acquiring company.
Acquisitions — sometimes called takeovers — generally carry a more negative connotation than mergers, especially if the target firm shows resistance to being bought. For this reason, many acquiring companies refer to an acquisition as a merger even when technically it is not. Legally speaking, a merger requires two companies to consolidate into a new entity with a new ownership and management structure ostensibly with members of each firm.
An acquisition takes place when one company takes over all of the operational management decisions of another. The more common interpretive distinction rests on whether the transaction is friendly merger or hostile acquisition. In practice, friendly mergers of equals do not take place very frequently.
It's uncommon that two companies would benefit from combining forces and two different CEOs agree to give up some authority to realize those benefits. When this does happen, the stocks of both companies are surrendered and new stocks are issued under the name of the new business identity.
Since mergers are so uncommon and takeovers are viewed in a derogatory light, the two terms have become increasingly conflated and used in conjunction with one another.
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.
The public relations backlash for hostile takeovers can be damaging to the acquiring company. The victims of hostile acquisitions are often forced to announce a merger to preserve the reputation of the acquiring entity.
Varieties of Mergers From the perspective of business structures, there is a whole host of different mergers. Here are a few types, distinguished by the relationship between the two companies that are merging: Horizontal merger - Two companies that are in direct competition and share the same product lines and markets.
Vertical merger - A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.Mergers & Acquisitions identifies 11 up-and-coming private equity investors, including Ethan Liebermann (TA Associates), John Kos (GTCR), Jennifer Roach (Yellow Wood Partners) and Afaf Ibraheem Warren (Siris Capital).
Mergers and acquisitions come in all forms and shapes. They can vary by a control degree of an acquired entity or by its purpose.
The type of acquisition may often dictate the Post-Merger Integration approach and also the degree of integration. CVS expects its roughly $69 billion acquisition of health insurer Aetna to close before Thanksgiving. CVS plans to open its first concept stores early next year, CEO Larry Merlo told Wall Street.
Mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations, or their operating units are transferred or consolidated with other entities. Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets through various types of financial transactions.
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