Corporate mergers take place almost every day in the business world, but the details of these deals are rarely shared with the public. The available information can be vague and confusing, even to key shareholders. Making the situation even more confusing is that some business deals of his nature are mergers, and others are acquisitions. Each of these has distinct advantages and benefits to shareholders and the general public, and there are some downsides to mergers and acquisitions. Having a basic understanding of corporate mergers and acquisitions can help shed light on these common business transactions and let you know what to expect in the coming years, both as a shareholder and customer.
Benefits of Corporate Mergers and Acquisitions
Large companies are always looking for ways to boost profitability and future growth. A company may find another business that correlates with a long-term strategy to expand to increase market share. A merger may be the best option if the smaller company does not lose its identity or customer base.
Stocks and Corporate Mergers
Shareholders of the company that is being acquired may worry about what happens to their stocks. Typically, the agreement between the two companies includes language that transfers existing stocks in the company being acquired to the company heading up the acquisition. Depending on the situation, you may see the value of your stocks increase, stay the same, or decrease after the merger. On very rare occasions, stocks may be cashed out as part of the acquisition.
Merger vs. Acquisition
The key difference between a corporate merger and acquisition is at the management level. For an acquisition, upper-level management does not change. With a merger, there is typically some small or significant changes to management. The decision to maintain or change management is up to the buying corporation and may be based on the company’s past performance. If the company is doing well, the corporation buying the company will not want to make any changes. If, on the other hand, if the company offers competitive products and services yet lacks effective leadership, the transaction will likely involve changes to upper-level management.