Mergers and acquisitions - everything to know about it

There is no more dramatic or controversial activity in corporate finance than the acquisition of one firm by another or the merger of two firms. But why do firms merge or acquire each other? Changing market conditions, intensified global competition, technological innovation and increasingly shorter product life cycles mean that companies are have to re-examine the traditional methods and strategies. Mergers and acquisitions are a considerable alternative to internal growth of companies since they make it possible for firms to quickly penetrate new and foreign markets, earlier take advantage of economies of scale and acquire necessary know-how and skilled personnel.
Whatever the motivation, or route taken, the objective of companies engaging in such transactions is to improve growth, profits, and the quality of earnings. It would be expected that such improvements in performance would lead to a reduction in the cost of capital and an increase in shareholder value.
• Merger, technically known as a „uniting of interest“ or an „amalgamation“, where two or more companies, of roughly equal significance, agree to transfer their capital to another company newly formed for the purpose and the old company is dissolved. For example, Firm A merges with Firm B to form Firm C. However, not necessarily on equal terms since one of the parties often gain a dominant position.
• Acquisition, in other words, takeover, occurs when an organization acquires sufficient shares to gain control or ownership of another organization. Fr example, Firm A takes over Firm B to create an enlarged Firm A.
However, the terminology is not conventional. In other sources, it is stated that the merger is a form of acquisition and a consolidation is a previously described merger.
• acquisition of stock;
• acquisition of assets.
1.1 Merger or Consolidation
A merger refers to the absorption of one firm by another. The acquiring firm retains its...

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