Advantages and disadvantges of mergers and aqiciation
Answers
Mergers and acquisitions are generally used synonymously; however, as defined above the two combinations are different in subtle ways.
In a merger transaction, a new company is formed by two companies. Post-merger, these separately owned firms become a single entity and are jointly owned. During the process of merger, the stocks of these companies are surrendered and the new company’s stocks are issued. Generally, companies of similar sizes undergo the process of merger.
In Merger, A + B = C
Whereas in the case of an acquisition, one company is taken over by another company and in the process, a single owner is established. Generally, a stronger and a bigger company takes over a smaller and a less powerful one. The bigger company runs the whole establishment with its identity and the smaller company has to lose its existence. In contrast to the merger, shares of the acquired company are not surrendered at all. These shares continue to be traded by the general public in the stock market.
In Acquisition, A + B = A
A merger typically refers to a friendly deal between two firms, even if it is a complete buyout. However, an acquisition refers to an unfriendly takeover of the smaller firm, at times even unwillingly, by the stronger firm commonly heard as “Hostile Takeover“. Several times a less powerful company is compelled by the bigger company to announce the transaction as a merger, even if it is an acquisition. Companies do this to avoid any negative marketing.