edf40wrjww2CF_PaperMaster:Desc
Mergers and Acquisitions
Acquisitions are the absorption of a smaller firm by a larger firm, while a merger is the combination of two firms to form a single entity. In a merger, there is often an exchange of stock between the companies where one company issues shares to the shareholders of the other company at a certain ratio. The firm whose shares continue to exist is generally referred to as the acquiring firm while the other is the target firm. Except for synergies, the post-merger value of the two firms is equal to the pre-merger value (Brealey, Myers, & Marcus, 2007, 598). The target firm’s shareholders, however, often benefit because they are paid a premium for their shares.
There are three ways that an organization can be acquired: a merge of all the assets and liabilities from a target firm into the acquiring firm, purchase the stock of the target company also known as a tender offer, and the purchase of individual assets of the target. “A merger adds value only if synergies, better management, or other changes make the two firms worth more together than apart” (Brealey, Myers, & Marcus, 2007, 592).
Synergies are revenue enhancements and cost savings gained through the merger/acquisition. Many merger decisions are made without regard to differences in culture between firms, especially in international mergers. However, there is much evidence to suggest that cultural differences are a major reason why many mergers eventually fail. Cultural integration is also a very important factor. Each company will have its own distinct culture and this need to be carefully considered when conducting a merger (Brealey, Myers, & Marcus, 2007, 599).
Home Depot is the large ...