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merger-final - MERGER Merger A merger occurs when two or...

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MERGER
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Merger A merger occurs when two or more firms are combined and the resulting firm maintains the identity of one of the firms, usually the larger. The firm in a merger transaction that attempts to acquire another firm is commonly called the acquiring company . The firm that the acquiring company is pursuing is referred to as the target company .
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Friendly versus Hostile Takeovers Typically, after identifying the target company, the acquirer initiates discussions. If the target management is respective to the acquirer’s proposal, it may endorse the merger and recommend shareholder approval. If the stockholders approve the merger, the transaction is typically consummated either through a cash purchase of shares by the acquirer or through an exchange of the acquirers stock, bonds, or some combination for the target firm’s shares. This type of negotiated transaction is known as a Friendly Merger .
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Friendly versus Hostile Takeovers If, on the other hand, the takeover target’s management does not support the proposed takeover, it can fight the acquirers actions. In this case, the acquirer can attempt to gain control of the firm by buying sufficient shares of the target firm in the marketplace. this is typically accomplished by using tender offers, which are formal offers to purchase a given no. of shares at a specified price. This type of unfriendly transaction is commonly referred to as a Hostile Merger .
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Strategic versus Financial Mergers Strategic Mergers seek to achieve various economies of scale by eliminating redundant functions, increasing market share, improving raw material sourcing and finished product distribution. Financial Mergers , on the other hand, are based on the acquisition of companies that can be restructured to improve their cash flow. These mergers involve the acquisition of the target firm by an acquirer, which may be another company or a group of investors – often the firm’s existing management.
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Motives for Merging Growth or Diversification : Companies that desire rapid growth in size or market share or diversification in the range of their products may achieve this objective in a short period of time by merging with an existing firm. If a firm that wants to expand operations can find a suitable going concern, it may avoid many of the risks associated with the design, manufacture and sale of additional or new products. It also removes a potential competitor.
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