Definition of merger
A merger is an agreement to join two existing companies into a new company. It is commonly done to expand the companies’ reach, expanding it into new segments or to be able to be in market share. There are several kinds of mergers considering the reasons two companies have to merge each other.
There exists five main kinds of company mergers:
Conglomerate: It is a merger between companies that have nothing in common. (Example: Walt Disney & American Broadcasting Company)
Horizontal: It is a merger between companies from the same industry and deal is part of the consolidation. (Example: Activision & Blizzard)
Market extension: It is a merger between companies which sell the same products but compete in different markets. (Example: Daimler-Benz & Chrysler)
Product extension: It is when the merger propose is to extend the products they sell. (Example: Mobilink Telecom Inc. & Broadcom )
Vertical: It is a merger between companies which manufacture different parts of a finished good. The propose is combine themselves to increase efficiency. (Example: Telepizza & Luxtor)
Definition of acquisition
An acquisition is when a company buys a target company completely or in part with the objective of assuming the control of it.
Acquisitions are usually part of strategy plans, which involve arising growth from the acquired firm, in situations in which seem better doing it than trying to expanding on its own. When the target company is agree in being acquired, the acquisition is considered friendly. (Example: Johnson & Johnson & Crucell). But sometimes, the target company is not agree with the acquisition. In this situation it is necessary purchasing a larger amount of shares to obtain company’s control. This are called hostile acquisitions. (Example: Endesa & Gas Natural)
In friendly acquisitions companies look for a mutual benefit. Together, the companies develop strategies to ensure the acquisition of the proper assets and review the financial statements and other valuations.
In hostile takeovers, as there are no agreement, it is necessary the acquisition of a bigger number of shares in order to get the control of the acquired company.
Usually, the interested company does an offer to acquired a number of shares enough to get the control. If this number is not reached, the company does not have to buy any share.