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Mergers and acquisitions (M&A) are an integral part of the corporate finance sector. Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, getting involved in an M&A can be a main land mark in his whole career.
This proposal considers the factors that drive firms to buy or merge with others, or to split-off or sell parts of their own businesses and the resulting tax consequences for firms and for investors. The main motive behind buying a firm is to create shareholder value above and over that of the sum of the two companies. The main assumption behind merging two companies is that two companies together are more productive than two separate companies. This underlying principle is particularly attractive to firms when the going is tough as has been the case for some of the companies in the prevailing economic crisis. Strong firms will opt buy other firms to create a more competitive, cost-efficient firm. The firms will merge with the intention of gaining a greater market share or to achieve greater efficiency. Due to these potential advantages, target firms will most of the time agree to be purchased when they are aware that they cannot survive alone. In fact merging or being acquired may be the only way for some smaller and less established firms to survive this prevailing economic crisis.
A merger occurs when two companies, most of the time roughly the same size, agree to proceed as a single new firm rather than be separately owned and operated. ...
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