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Mergers and Acquisitions
University of Phoenix
Fin/325
When one company buys another, it is making an investment, and the basic principle of capital investment decisions apply. The impact of mergers and acquisitions on business can be good for one company or even two companies, as well as bad for others. There are a few reasons why a company should either acquire another or merge with another.
A company should go ahead with a purchase if it makes a net contribution to shareholder’s equity. The term mergers and acquisitions mean that an organization has a business strategy to merge with or acquire another organization According to (www.issueatlas.com, Chap 5 “Mergers and Corporate Restructuring”); there are three ways for one firm to acquire another. One possible way is merging two companies into one, in which the acquiring company assumes all the assets as well as liabilities from the other company. A merger has to have the approval of at least 50 percent of the company’s shareholders from each firm before the merge takes place (Brealy, Myers, Alan “Fundamentals of Corporate Finance” 2003). Shareholders are not always satisfied with a proposed merger unless the merger is to the best of the shareholders interests. Mergers can be categorized as horizontal, vertical or conglomerate. Horizontal mergers occur between two companies within the same industry, for example, hotels. In vertical mergers, the buyer expands backward to acquire basic components or raw materials, or forward to acquire the ultimate consumer, possibly through acquisition. Conglomerate mergers involve companies in unrelated lines of business. An example of a conglomerate merger would in ...