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“Today Shapes Tomorrow
 Published Every Monday    Volume  49      Special Edition                    February 11, 2008
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What is Mergers and Acquisition (M&A)?

  • Acquisition happens when one company buys another company.
  • Acquisition is not very different than buying or trading a baseball card that you want. For example, Jane wants to buy a special baseball card.  Let us say, Jane knows that John has that card and he would be interested in selling it. To acquire John’s card, Jane would have to make an offer (or in other words bid). If John agrees to sell his card to Jane then Jane successfully acquires John’s card in a friendly manner. 
  • What if, Jane wants John’s card, however, John is unwilling to sell to Jane?  Jane could get unfriendly and put pressure on John to sell. The acquisition experts call it a “hostile” takeover.
  • Let us take the example of Microsoft (Ticker MSFT)  and Yahoo (Ticker Yhoo). This past week, Microsoft (the buyer) made an offer (also called bid or tender) to buy (or acquire) Yahoo for $45 billion (or $31 per share). Now Yahoo’s shareholders (the owner) will have to decide if they should consider Microsoft’s offer to sell at $31 per share.  If most of Yahoo’s shareholders sell their shares to Microsoft, then Microsoft will be successful in buying (or acquiring) Yahoo.
  • On the other hand, if Yahoo’s shareholders decide to reject Microsoft’s offer and if Microsoft still wants to buy Yahoo, then Microsoft will have to find other ways to give incentives to Yahoo shareholders, such as, increasing its offer.  This could go on for some time until both parties agree or Microsoft backs down.

What is a merger?

  • The merger is simply when two companies join together to form one company.  In this case, one company continues to operate the two merged companies as one and the other company disappears. For example, Travelers and Citibank merged to form Citigroup.  In this case, Citigroup continued to exist but the name Travelers disappeared.




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