IntroductionAn important, some would say only, the purpose of a business is to create value for the owners or shareholders. Businesses, because of the value represented, are often bought and sold by other businesses. The combining and/or buying of businesses is an industry all its own called mergers and acquisitions. When two companies find compatible reasons to combine their businesses and form a single business unit that is called a merger; when one company buys another company that is called an acquisition. This paper will look briefly at the nature and reasons for businesses merging and acquiring other businesses.
Mergers and acquisitions (M&A) generally deal with the battle for corporate control (Brealey, Myers, & Marcus, 2004, p. 588). Corporate control is exercised by top-level management, hired by the board of directors. The only way to remove these managers is through the board of directors. Often, that means replacing the board and hiring new management.
There are essentially four ways to change corporate control: (1) proxy contest, (2) purchase of the company by another (merger or acquisition), (3) leveraged buyout, and (4) divestiture (Brealey et al., 2004, p. 588).
Proxy ContestsProxy contests are campaigns by shareholders to wield enough power to cause changes in management by garnering enough votes of other shareholders to vote a single way. Obtaining legal permission to vote another's shares is called a proxy. Proxy contests are difficult, but they have been successful in the past when management or board actions have been perceived to be against the best interests of the shareholders. Shareholders elected the board of directors and shareholders can remove them.
Merger or AcquisitionWhen a company recognizes a value in owning another company, it may negotiate with the target company to merge and create a single company under the control of...