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 because of the secrecy that usually shrouds the negotiations. Mergers are slightly different from acquisitions. In the former, stockholders of the two companies come together and share interest in the new enlarged entity. Based on the valuation of the companies concerned, the shareholding pattern may change. An example: Company A, which is stronger, and Company B, which is not doing well, merge. The shareholders of B may be given one share in A for every 2 shares they hold in B. If it were to be an acquisition, A would purchase the controlling or substantial portion of B's stock, and take over that company. Motives behind mergers and acquisitions could be different in each case. Sometimes it may be to save taxes. Continuing with the earlier mentioned example, the accumulated losses of B could be set off against the profits of A, resulting in substantial tax savings. There could be other reasons for a merger or acquisition, like expanding the market base or complementing the existing activities. Plans and negotiations for mergers and acquisitions are normally kept secret until the deal is almost through. Usually the professional groups involved in the process are investment bankers, consultants and lawyers specializing in the field. Often, the services of another type of specialists known as 'interim managers' may be utilized also, to smooth out the transition pangs. All mergers and acquisitions are supposed to be done for the benefit of the stockholders of both companies. In reality this may not be always true. Those who have stocks should carefully study proposals for mergers and acquisitions before consenting to the move. |
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