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Mergers and Acquisitions
Mergers and acquisitions are a big part of the finance world and occur when companies must expand their production and operations. A merger is defined as "combination of two firms into one, with the acquirer assuming assets and liabilities of the target firm" (Brealey, Myers & Marcus, 2003). An acquisition is "takeover of a firm by purchase of that firm's common stock or asset" (Brealey, Myers & Marcus, 2003). Mergers and acquisition tend to happen in order to bring more efficiency into an organization. This generally helps to reduce costs and lower prices fro the consumers. In order for the implementation of the deal to be effective a good amount of research must be done to ensure success. Solid decisions must be made in order for one concrete management team to emerge in leading the new organization.
It is very important to understand the term's acquisition and mergers because they are slightly different. An acquisition is when a target company is purchased and it no longer exists and the company purchasing the target company continues to sell its stocks. Merging is when two companies of about the same size decide to merge as one and surrender both companies stock and issue new stock (Investopedia, 2007). The point of merging or acquiring is to make two companies more valuable than two separate companies. Merging or acquiring another company can be extremely beneficial as well as create a vast amount of inevitable surprises. Companies must weigh both the pros and the cons before actually acquiring or merging with another company. By merging it creates the potential for a company to become stronger and more diverse within the ...