Merger and Acquisition Transactions - Research Paper Example

The job of the board of directors, as well as management, is to maximize shareholder value, ensure the growth of the organization, limit competitive inroads, and derive a profit (Waldo, 1985, pp. 4-5). In pursuing this path, the board and management need to consider all of the options, choices and market dynamics that can potentially achieve these objectives (Rathmell et al, 2003, p. 3). One such path is through either merging with and or acquiring other companies whereby economies of scale are brought into play, new markets entered, product lines and or services added, or a host of other facets that help management, which includes the board of directors, achieve the aforementioned goals.

In terms of the preceding, a merger and or acquisition represents when a “…combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity” [legaldictionary.com, 2009]. In terms of the mechanisms employed in the processes, a merger represents when the merged corporation ceases to exist, with the company taking over assuming all of the liabilities as well as rights and privileges [legaldictionary.

com, 2009]. In mergers, the acquiring company retains its identity, while the firm being acquired does not exist after the mergers [referenceforbusiness.com, 2008]. Generally speaking, a merger takes place with the expectation of the acquiring firm realizing an economic gain of some types, thus in terms of justification of the two firms after the merger should have more value than they did as separate entities [referenceforbusiness.com, 2008]. The preceding can be a difficult proposition as mergers and acquisitions are complex transactions in terms of the costs, stock valuation, benefits, associated costs, along with the legal as well as tax facets.

Mergers can take place in three different forms, which is based on the nature of the competitive relationship that exists between the parties [legaldictionary.com, 2009], these are as follows [Karier, 1994, pp. 8-10]: Horizontal- This type of merger represents the consolidation of companies that are direct rivals in terms of the products and or services they sell as well as them completing in geographical markets that overlap in many instances. This type of merger thus eliminates a form of competition via distinct markets and or products.

Vertical - This merger represents when the firms involved have either actual and or a potential buyer and seller relationships, such as when a company acquires a customer and or supplier. Conglomerate - A conglomerate merger is where the companies involved may sell products and or services that are related, and or unrelated.  In examining mergers and acquisitions it is important to note that there are differences between the two. In the instance of an acquisition, this usually indicates a change in the control of the entity being acquired, whereas in a merger the transaction is more often a marriage of equals to a degree [Shirley, 2007].

Thus, in summary, mergers represent two companies making a mutual decision to combine and result in one entity is generally referred to as a marriage of equals even though there can be differences in size. The objectives in a merger, in addition to the aforementioned, usually entail operational and or structural advantages that can reduce costs along with increasing profits and boosting the values of the combined companies [Shirley, 2007]. An acquisition is sometimes also referred to as a takeover and in general represents a larger company taking over a smaller one, resulting in the same general benefits as represented by a merger, but the acquisition or takeover does not have to be a mutual decision on the part of the company being acquired [Shirley, 2007].