Merger And Acquisition

In the world of growing economy and globalization, major

companies on both domestic and international markets struggle

to achieve the optimum market share possible. Every day

business people from top to lower management work to achieve

a common goal - being the best at what you do, and getting

there as fast as possible. As companies work hard to beat

their competitors they assume various tactics to do so. Some

of their tactics may include competing in the market of their

core competence, thus, insuring that they have the optimal

knowledge and experience to have a fighting chance against

their rivals in the same business; hostile takeovers; or the

most popular way to achieve growth and dominance - mergers

and acquisitions.

Mergers and acquisitions are the most frequently used

methods of growth for companies in the twenty first century.

Mergers and acquisitions present a company with a potentially

larger market share and open it up to a more diversified

market. At times, a merger or an acquisition simply makes a

company larger, expands its staff and production, and gives

it more financial and other resources to be a stronger

competitor on the market.

To define this topic more clearly, let me state that a

corporate merger, as defined by the "Quick MBA" reference

website, is the combination of the assets and liabilities of

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two firms to form a single business entity. In everyday

language, the term "acquisition" tends to be used when a

larger firm absorbs a smaller firm, and "merger" tends to be

used when the combination is portrayed to be between equals.

In case of a merger between two firms that are approximately

equal, there often is an exchange of stock in which one firm

issues new shares to the shareholders of the other firm at a

certain ratio. It has been customary that the firm whose

shares continue to exist, even if that occurs under an

alternate company name, is referred to as the acquiring firm

and the firm whose shares are being replaced by the acquiring

firm is usually called the target firm. You can refer to the

appendix of this thesis to find the formula for the premerger

stock price.

A merger is considered to be successful, if it increases

the acquiring firm's value. Clearly, judging from the various

statistics charts found in the appendix, there is a

considerable amount of companies in the United States which

believe that a merger will increase their company's value.

An article which was recently published by the Federal

Trade Commission (FTC) noted that the United States is

heavily involved in the so called right "merger wave." The

number of mergers reported rose from "1,529 in 1991 to a

record 3,702 in 1997 - a 142 percent jump." During this

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period, the FTC spent a great amount of time on

distinguishing and at times preventing mergers which were

potentially anticompetitive and directed at forming

monopolies. This is a great example of the strong controls

that the United States government has instituted, in order to

prevent companies from forming monopolies, so that our

financial markets will stay unpolluted and healthy

competition can continue to thrive. It also shows that the

topic of mergers is extremely controversial at times and

involves a great number of legal aspects in order for any

merger to become finalized.

Most mergers have actually been known to benefit both

competition and consumers by allowing firms to operate more