|
| |
Although they are often uttered in the same breath and used as
though they were synonymous, the terms merger and acquisition mean slightly
different things.
When one company takes over another and clearly establishes itself as the new
owner, the purchase is called an acquisition. From a legal point of view, the
target company ceases to exist, the buyer "swallows" the business and the
buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about
the same size, agree to go forward as a single new company rather than remain
separately owned and operated. This kind of action is more precisely referred to
as a "merger of equals". Both companies' stocks are surrendered and new company
stock is issued in its place. For example, in the 1999 merger of Glaxo Wellcome
and SmithKline Beecham, both firms ceased to exist when they merged, and a new
company, GlaxoSmithKline, was created.
In practice, however, actual mergers of equals don't happen very often. Usually,
one company will buy another and, as part of the deal's terms, simply allow the
acquired firm to proclaim that the action is a merger of equals, even if it is
technically an acquisition. Being bought out often carries negative connotations,
therefore, by describing the deal euphemistically as a merger, deal makers and
top managers try to make the takeover more palatable. An example of this would
be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to
in the time, and is still now, as a merger of the two corporations.
A purchase deal will also be called a merger when both CEOs agree that joining
together is in the best interest of both of their companies. But when the deal
is unfriendly - that is, when the target company does not want to be purchased -
it is always regarded as an acquisition.
Whether a purchase is considered a merger or an acquisition really depends on
whether the purchase is friendly or hostile and how it is announced. In other
words, the real difference lies in how the purchase is communicated to and
received by the target company's board of directors, employees and shareholders.
It is quite normal though for M&A deal communications to take place in a so
called 'confidentiality bubble' whereby information flows are restricted due to
confidentiality agreements.
UCY CAPITAL PARTNERS supports you discreetly and professional
in every aspect of mergers & acquisitions.
|
