An acquisition means the purchase of one company by another company. Consolidation occurs when two companies combine together to form a new company altogether. An acquisition may be private or public, depending on whether the acquiree or merging company is or is not listed in public markets. An acquisition is of 2 types i. e. friendly or hostile. If a purchase is perceived as a friendly or hostile depends on how it is communicated to and received by the target company’s board of directors, shareholders and employees.
M;A deal communications take place in a so-called ‘confidentiality bubble’ whereby information flows are restricted due to confidentiality agreements. In a friendly transaction, the companies cooperate in negotiations; in a hostile deal, the takeover target is unwilling to be bought or the target’s board has no prior knowledge of the offer. Hostile acquisitions can, turn friendly at the end, as the acquiror secures the endorsement of the transaction from the board of the acquiree company.
This requires an improvement in the terms of the offer. Acquisition refers to a purchase of a smaller firm by a larger one. Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions influencing its outcome. There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications.
They are as follows: •The buyer buys the shares, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but as the company is acquired intact as a going concern, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces. •The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend.
This transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to “cherry-pick” the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards like that could arise from litigation over defective products, employee benefits or terminations, or environmental amage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller’s shareholders.