A merger describes a scenario where two companies unite, and one of the companies ceases to exist after becoming absorbed by the other. The boards of directors of both companies must first secure approval from their respective shareholder bases.
An acquisition merging when one company the acquirer obtains a majority stake in the target firm, which incidentally retains its name and legal structure. For example, after Amazon acquired Whole Foods inmerging latter company maintained its name and continued executing its business model, as usual. For example, inHarris Corp. A tender offer describes a public takeover bid, where an acquiring company a.
The acquiring company bypasses the target company's management and board of directors, which may or may not approve of the deal. The acquisition of assets occurs when one company acquires the assets of another, with the approval of the target entity's shareholders. This type of event often occurs in cases of bankruptcy, where acquiring companies bid on various assets of the liquidating company. But for management acquisitions to occur, a majority of a company's shareholders must approve of the transaction.
Synergies : By combining business activities, overall performance efficiency tends to increase and across-the-board business ideas roseanne tend to drop, due to the fact that each company leverages off of the business company's strengths. Growth : Mergers can give the acquiring company an opportunity to grow market share without doing significant heavy lifting. Instead, acquirers simply buy a competitor's business for a certain price, in what is usually referred to as a horizontal merger.
For example, business for started on getting facebook beer company may choose to buy out a smaller business brewery, enabling the smaller outfit to produce more beer and increase its sales to brand-loyal customers. Increase Supply-Chain Pricing Power : By buying out one of its suppliers or distributors, a business can eliminate an entire tier of costs.
Specifically, buying out a supplier, which is known as a vertical merger, lets a company save on the margins the supplier was previously adding to its costs. Any by buying out a distributor, a company often gains the ability to ship out products at a lower cost. On the downside, a large premium is usually required to convince the target company's shareholders to accept the offer. It is not uncommon for the acquiring company's shareholders to sell their shares and push the price lower, in response to the company paying too much read article the target company.
Investing Essentials. Your Money. Personal Finance. Your Practice. Popular Courses. A merger business two companies uniting, where one of the companies ceases to exist after becoming absorbed by the other.
An acquisition occurs when one company obtains a majority stake in the target firm, which retains its name and legal structure. Companies merge with or acquire other companies for a host of reasons, including:. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Related Articles. Partner Links. Acquisition Frenzy Is Alive and Well An acquisition is a corporate action business which one company purchases most or all of another company's shares to gain control of that company.
How Takeovers Work A takeover occurs when an acquiring company makes a bid to assume control of a target company, often by purchasing a majority stake. Corporate Action Merging A corporate action is any event, usually approved by the firm's board of directors, that brings material change to a company and affects its stakeholders. How Investors can Perform Due Diligence on a Merging Due diligence refers to the business done before entering into an agreement or merging financial transaction with another party.
Poison Pill A poison pill is a defense tactic utilized by a target company to prevent or discourage attempts of a hostile takeover by an acquirer.