CROSS BORDER ACQUISITIONS

Cross Border Acquisitions

Introduction

A merger is a tool that is used by companies to expand their operations often has the objective of increasing its long-term profitability. There are 15 different types of actions a company can take when deciding to move forward with M & A. (DePamphilis 2001, 11-14) Mergers generally occur (occurring by mutual consent) a consensual setting where executives of the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. (Cooper 1992, 12-16)

Acquisitions can also happen with a hostile takeover by buying a majority of outstanding shares of a company in the open market against the wishes of the target board. In the United States, business laws vary from state to state for which some companies have limited protection against hostile takeovers. A form of protection against a hostile takeover shareholder's right plan is otherwise known as “poison pill.” (Damodaran 2001, 56-72)



Types of Acquisition

The purchaser buys the parts, and therefore control of the target company being purchased. The control of the property of the company in turn conveys effective control over the assets of the company, but since the company acquired business intact as it goes, this form of transaction carries with it that all responsibilities were increased by the surplus of the business its past and all risks that company faces in its business environment. (Hogue 1967, 1-2)

The buyer purchases the assets of the target company. The target cash received from sell-off is paid back to shareholders through dividends or liquidation. This type of transaction leaves the target company as a shell, if the purchaser buys out the entire assets. (Stern 1997, 9-13)

In business or economics a merger is a combination of two companies into a larger company. Such actions are usually voluntary and involve common exchange or payment of cash to the target. The common exchange is often used while allowing the shareholders of both companies to the risk involved in the deal. (Lessard 1977, 1049-1055) A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and new branding, in some cases, called the combination a "merger" rather than an acquisition is done purely for political or marketing. (Kroger 1999, 98-103)

Motives behind Mergers and Acquisitions

The dominant rationale explaining merger and acquisition activity is that it would acquire search improved financial performance of firms. The following reasons are considered to add shareholder value:

Synergy: This refers to the fact that the combined company can often reduce duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit. (Arnold 2002, 90-99)

Increased revenue market share / increased: This motive assumes that the company will absorb a major competitor and thus increase its power to the price of the system. (Johnson 2002, 82-85)

Sale in "cross-sell: For example, a bank to purchase stock broker could then sell its banking products to customers in the common corridor, while the ...