Mergers and acquisitions in the business world are often in the news. For every successful case that is reported, there are several failed moves that may never come to light due to the secrecy that usually surrounds negotiations.
Mergers are slightly different from acquisitions. In the first, the shareholders of the two companies come together and share interests in the new enlarged entity. Depending on the valuation of the companies in question, the shareholding pattern may change. An example: company A, which is stronger, and company B, which is not doing well, merge. Shareholders of B can receive one share in A for every 2 shares they own in B. If it were a takeover, A would buy the majority or substantial share of B’s shares and take over that company.
The reasons for mergers and acquisitions may be different in each case. Sometimes it may be to save taxes. Continuing with the example mentioned above, B’s accumulated losses could be offset by A’s gains, resulting in substantial tax savings.
There could be other reasons for a merger or acquisition, such as expanding the market base or supplementing existing activities.
Plans and negotiations for mergers and acquisitions are normally kept secret until the deal is almost done. Usually the professional groups involved in the process are investment bankers, consultants and lawyers specializing in the matter. Often, the services of other types of specialists known as “interim managers” can also be used to ease the pains of the transition.
All mergers and acquisitions are supposed to be done for the benefit of the shareholders of both companies. In reality, this may not always be true. Stockholders should carefully study proposed mergers and acquisitions before consenting to the transaction.
