Mergers and acquisitions are two of the most misunderstood words in the business world. Both terms are used in reference to the joining of two companies, but there are key differences involved in when to use them. An acquisition refers to one company taking over another, while a merger describes two companies becoming equal partners.
An acquisition occurs when one firm targets and buys out another, becoming the sole owner of both. The target firm ceases to exist, and its stocks are absorbed by the new firm. In an acquisition, the two companies involved are not equal; one is financially stronger and overpowers the weaker company. They can be either friendly or unfriendly in nature. When the target company does not wish to be acquired, this is known as a hostile takeover.
A merger is the result of two companies merging and becoming a new company. A new identity is formed, and both companies share the same percentage of ownership and profits. Stocks for both companies are turned in, and new stock is issued in the new company's name. A merger occurs between companies of similar size and finances, taking two weak companies and making them stronger financially. It is a friendly transaction since both companies agree to the deal, and both usually benefit from the arrangement.
skymucdan answered the question on October 10, 2017 at 10:24
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