Mergers & Acquisitions & Corporate Failures

Mergers & Acquisitions & Corporate Failures...

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& Corporate Failures Corporate restructuring covers a broad array of activities that include changes in ownership, asset structure and/or capital structure of a company. This lecture covers two types of restructurings—mergers and business failures. I. Businesses may grow externally by acquiring or combining with other businesses. When two companies combine, the shares of the acquired company are purchased by the acquiring company. A. There are several legal types of combinations. 1. A merger is a combination of two (or more) companies in which the surviving company continues to operate under its own name and the other company (or companies) legally ceases to exist. Example : When Chemical Bank merged with Chase Bank, Chemical ceased to exist. 2. A parent-subsidiary is a combination of two (or more) companies in which the surviving company continues to operate under its own name and the other company (subsidiary) operates under its own name. Example: When Pepsi Cola bought Frito-Lay Foods, Frito Lay continues to exist as a separate entity. 3. A consolidation is a combination in which the combining companies are dissolved legally and a new company is formed. Example: When Sperry and Boroughs combined to form Unisys. 4. The term acquisition is synonymous with merger. B. Mergers can also be categorized as vertical, horizontal, or conglomerate mergers. 1. A vertical merger is between companies that may have a buyer-seller relationship with each other. Example: A shoe manufacturer buys either a shoe store or a leather supplier. 2. A horizontal merger is a combination between companies that compete directly with each other. Example: A shoe manufacturer buys another shoe manufacturer. 1
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3. A congeneric or concentric merger is between companies that are in a related industry, but are neither customer, competitor nor supplier. Example: A shoe manufacturer buys a sock manufacturer. 4. A conglomerate merger is a combination in which the companies neither compete with each other nor have a buyer-seller relationship. Example: A shoe manufacturer buys a donut shop. C. A merger may be completed through a stock purchase or an asset purchase. 1. In a stock purchase, the acquiring company buys the stock of the target company and assumes its liabilities. 2.
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Mergers & Acquisitions & Corporate Failures...

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