Merger and Acquisition Research Proposal Example | Topics and Well Written Essays - 3250 words

Merger and Acquisition - Research Proposal Example 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 b e 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. This sort of procedure is more accurately referred to as a "merger of equals". The stocks of both the firms are surrendered and novel company stock is issued in its place (Tibergien, 2006). For example, both Daimler-Benz and Chrysler ceased to exist when the two companies merged, and a new firm, DaimlerChrysler, was born. Although most of the time they are used in the same context and used as though they were synonymous, there is a slight difference in meaning the terms merger and acquisition. When a firm purchases and clearly establishes itself as the new owner, the taking over is called an acquisition. From a legal perspective, the target company ceases to exist, the buyer company takes over the business and the buyer's stock continues to be traded. In real world however, actual mergers of equals don't happen that regularly. Usually, one firm will buy another and, as part of the deal's terms, simply allow the acquired firm to declare that the action is a merger of equals, even though technically it's an acquisition (Donald, 2008). Being bought out most of the time has its negative implications, as a result, by defining the deal as a merger, deal makers and the top management attempt to make the acquisition more pleasant. A purchase deal will also be called a merger if both CEOs agree that joining together is in the best interest of both of their companies. But when the target company does not want to be purchased-that is when the deal is unfriendly - it is all the time considered as an acquisition. Whether a purchase is regarded a merger or an acquisition actually depends on whether the purchase is friendly or hostile and how it is announced. That is the actual difference is in how the purchase is communicated to and received by the target company's top management, other workers and shareholders. The economic crisis and anticipated slowdown in spending has made a number of firms that have great technology but weak balance sheets seek the shelter of a merger or an