Mergers and Acquisitions

A merger is generally considered a friendlier strategy than other types of acquisitions. In a true merger of equals, the interests of both companies are preserved as both companies mutually agree to combine their organizations as they recognize the potential benefits from their merger. In a merger parties negotiate to determine the value of one another, this negotiation translates into how much ownership each company will have in the other, (Mastracchio & Zunicht, 2002). Mastracchio and Zunicht elaborate that additional advantages to mergers include that they do not require cash, they can be accomplished without incurring additional taxes, and the shareholders of the smaller entity generally increase the worth of their shares by owning shares of a larger corporate entity and increase their security by being affiliated with a larger organization. Through a merger an organization becomes a larger organization and is better able to compete with other large organizations.
Mastracchio and Zunicht write that a merger is generally more expensive than other types of acquisitions as each party incurs higher legal costs than they would under an acquisition, (2002). As one company ceases to exist, corporate rebranding is necessitated, this is most often done incorrectly and value is lost rather than gained, (Ettenson & Knowles, 2006).
If, in fact, you have achieved a true merger then you should witness a merging of corporate cultures with a blending of cultures rather than one culture superimposing itself upon the other. If a merger isn’t working then typically an exodus of dissatisfied talent from one organization or the other is witnessed.
An acquisition is the outright purchase of one company by another, generally larger company and with an acquisition companies negotiate for value to determine the purchase price of the acquisition. After an acquisition, generally the acquired company and their brands still exist though this may not always be the case as the acquirer could cannibalize and dissolve the acquisition. Peter Navarro writes that in an economic downturn, a successful strategy for many companies is the acquisition of other companies at reduced pricing, (2009). Additional advantages for an acquisition strategy include obtaining an operations base in a particular location or expanding geographically into an adjacent market, bringing in more business of a certain type, increasing productivity without increasing costs that can yield increased profitability, and increased visibility and prestige, (Mastracchio & Zunicht, 2002.
Acquisitions can be hostile and, in fact, they almost always have a negative connotation so often companies attempt to disguise their acquisitions as mergers. Additionally, in an acquisition strategy, as buyers don’t have access to all of the information up front, they may end up overpaying, and ultimately can never make up what they paid, (Shearer, 2002).
If an acquisition is working then increased shareholder value should be eventually be evident, if the strategy isn’t working then the acquisition never becomes profitable.

References:
Ettenson, R. & Knowles, J. (2006, Summer). Merging the brands and branding the merger. MIT Sloan Management Review, 47(4), 38-49. Retrieved from ProQuest ABI/Inform Complete.
Mastracchio Jr., N. J. & Zunitch, V. M. (2002, November). Differences between mergers and acquisitions. Journal of Accountancy, 194(5), 38-41. Retrieved from EBSCOhost Business Source Complete.
Navarro, P. (2009, Spring). Recession-proofing your organization. MIT Sloan Management Review, 50(3), 45-51. Retrieved from ProQuest ABI/Inform Complete.
Shearer, B. (2002, October). Warming up to alliances. Mergers and Acquisitions, 37(10), 6-12. Retrieved from ProQuest ABI/Inform Complete.