Mergers and Acquisitions

Mergers/Acquisitions although often mistakenly believed to mean the same the terms merger and acquisition have slightly different meanings.

A merger is where two companies, of approximately the same size, agree to merge and go forward as a single corporate entity, neither individual company having a dominance of control.

This is called a 'merger of equals'.

Acquisitions are when one company takes over another business and clearly establishes control over that company.

In legal terms the company that is 'acquired' ceases to exist, the purchasing company taking ownership of its stock.

In practice 'mergers of equals' are rare transactions as usually one of the two companies involved is dominant.

Commonly the dominant company will purchase the smaller business and, as part of the terms of the purchase, the acquisition will be referred to as a 'merger of equals'.

The rationale behind this is to avoid the negative connotations associated with acquisitions and offset the potential for a company?s reputation to be harmed.

An acquisition will also be regarded as a merger when both companies agree that a merger is in their best interests.

Whether a coming together of two businesses is regarded as a merger or an acquisition is dependant upon whether it is hostile or friendly and how the matter is communicated to the respective boards of directors and the public.