Merger And Acquisition

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Merger and Acquisition: Rationale and difficulties in the process of merger between Standard Chartered Bank and Grind lays bank Bangladesh

Merger and Acquisition

Mergers And Acquisitions

Mergers and acquisitions take place for various different reasons including increasing shareholders wealth, reduction in costs with an increase in earnings per share, increase in liquidity, restructure the organization, and penetrate international space. Specifically, mergers and acquisition activity has seen an increase in U.S. firms and international companies transacting mergers to gain access into new markets. One example of an international merger is Sony Japan and MGM in 2004 which allowed the companies to combine their home video business. (Beatty, Santomero, Smirlock, 2004, 12) This paper will highlight the pros and cons of merging, factors used in determining the price paid and realized benefits, the effect the merger had on the stock prices, the capital structure, and four international financial management issues that must be addressed and ways for the companies to protect themselves. (Hunter, Walker, 1990, 1117)

Mergers and acquisitions are processes of acquiring new assets by buying and taking over other businesses or by merging with them. Like any type of business activity, there are pros and cons for both mergers and acquisitions. Some of the pros include: the potential to add value to a company's bottom line, the potential to increase a market share, and the potential to add assets to a company's holdings. While M&A's have several pros, they also have several cons. (Berger, Humphrey, 2000, 541) Some of the cons include bad public reaction to hostile takeovers, resistance from the targeted company and the acquisition of additional liabilities and problems. (Jenkinson, Mayer, 1994)

Types Of Acquisitions

There are two main types of acquisitions, a share purchase and an asset purchase. In a share purchase acquisition a company will buy shares of a target company from its shareholders. By doing this it gains equity in the target company merging the two companies together. The second type of acquisition is an asset purchase. In an asset purchase the buying company only selects specific assets to purchase. (Akhavein, Humphrey, 20006, 12) By doing this the buying company is able to select the assets that they want to acquire without having to take on the liabilities and problems of the target company. (Kesner, Shapiro, Sharma, 1994, 703)

Mergers are also interested in acquiring assets; however, they fund their purchases differently. There are three basic types of mergers: all share deals, cash deals and hybrid deals. In all share deals, the merger is financed by exchanging shares in one company for shares in the other. In a cash deal, cash is used to purchase company stock. In hybrid deals, both cash and shares are used to finance the merger deal. The type of funding deal that is used will be up to the companies involved and the liquidity of the buying company and the target company. (Kosnik, Shapiro, 1997, 7)

Different types of firms each play a unique role in the economy and in industrial ...
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