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Mergers and Acquisitions
Have you ever wondered what happens to a company when it is bought out by another company? How do companies change hands and how are the assets of both measured for the purpose of the deal? The following information will help you to understand how mergers and acquisitions take place.
A merger is when two companies decide to pool their resources to make one company. Usually this is after the owners (or the board of directors if the companies are large and privately owned) make an agreement. A contract outlining the terms of the agreement is drawn up. This contract will explain how each company's assets and staff will be affected by the deal.
Sometimes a merger is relatively simple and the two companies will begin working together as one firm quickly and smoothly. However, if the companies have large numbers of staff and multiple departments in each, a merger can be highly complex. Often the changes caused by a merger will take several months to implement. Personnel from both companies may lose their jobs because their positions are no longer required in the new company.
Both mergers and acquisitions have the same end result, which is that two companies will become one. An acquisition is when one company will purchase another and becomes the new owner of all assets, staff and equipment. Once again, the owners of both companies must agree to the terms of the deal before it takes place.
However, a second type of acquisition only requires one company to commit to it. This is known as a “hostile takeover”. You may have heard about these acquisitions taking place in companies that sell shares. This is because hostile takeovers only involve publicly traded companies. The company that is purchasing another must own enough stock or shares to be the dominant shareholder.
Often the company being taken over does not wish to sell out. However, if another company owns most of its stock, it has a controlling interest. The more shares you have, the more votes you get from shareholders. If you own more than half of the shares, you can control the company.
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