Mergers and Acquisitions: An Overview.

Mergers and acquisitions are two of the most misunderstood terms in business. Although both expressions allude to the merger of two firms, they have distinct meanings and should be used differently.

A merger is when two different entities join forces to form a new, unified entity. An acquisition is the takeover of one entity by another. Mergers and acquisitions aim to increase a company's reach and market share, ultimately creating shareholder value.

Mergers

Mergers include the consolidation of two businesses into a new organization with new ownership and management structures, often including members of both firms. Deals are often differentiated based on whether they are amicable (merger) or hostile (acquisition). Mergers take no funds to accomplish, yet they reduce each company's unique authority.

Friendly mergers of equals do not occur very often. It is unusual for two corporations to profit by merging forces, with both CEOs choosing to cede some control in order to reap those advantages. When merger occurs, the stocks of both firms are relinquished, and fresh shares are issued in the name of the new company identity.

Mergers are often done to minimize operating costs, enter new markets, and increase revenue and profits. Mergers are typically voluntary and include firms of nearly equal size and scope.

Acquisitions

An purchase does not create a new corporation. Smaller companies are typically swallowed by bigger ones, and their assets become part of the latter.

Acquisitions, often known as takeovers, are typically seen negatively compared to mergers. As a consequence, acquiring corporations may refer to an acquisition as a merger while in reality it is a takeover. An acquisition occurs when one firm assumes complete control of another company's operational management choices. Acquisitions need significant sums of money, yet the buyer's authority is absolute.

Companies may buy another firm in order to purchase their supplier and achieve economies of scale, lowering unit costs as production grows. Companies may want to increase their market share, cut expenses, and expand into new product areas. Companies participate in acquisitions to gain the target company's technology, which may help save years of capital expenditure and R&D.

Mergers and takeovers are often used interchangeably due to their rarity and bad connotations. Corporate restructurings are often referred to as merger and acquisition (M&A) deals. The new meaning of M&A agreements is blurring the distinction between the two categories.

Real-world examples of mergers and acquisitions

There have been several mergers and acquisitions throughout the years, but two of the most noteworthy are included here.

Exxon-Mobil merger

In November 1999, Exxon Corp. and Mobil Corp. concluded their merger with permission from the Federal Trade Commission. Before the merger, Exxon and Mobil were the industry's top two oil producers. The merger resulted in a significant reorganization of the merged firm, including the sale of over 2,400 gas stations throughout the United States.1 Exxon Mobil Corp. (XOM) continues to trade on the New York Stock Exchange.2

Acquisition: AT&T buys Time Warner

AT&T finalized its purchase of Time Warner Inc. on June 15, 2018, according to the company's website.3nonetheless, owing to action by the US government to reject the agreement, the purchase moved to the courts; nonetheless, in February 2019, an appeals court allowed AT&T's buyout of Time Warner Inc.4.

The $42.5 billion purchase will result in $1.5 billion in cost savings for the combined firm and $1 billion in revenue synergies, both of which are projected to be achieved within three years of the deal's closing.3On May 17, 2021, AT&T announced that it would spin off its WarnerMedia division and combine it with Discovery.