28/04/2003

Many  things have been written and said about the motives that attract companies to the conduct of mergers and acquisitions. Also many studies and statistical analysis have been made for M&A, since not all M&A cannot be explained and justified for the same motives. So it is very important the understanding of the different motives for a further favorable attitude of the factors of the phenomenon for the benefits of the organizations. But in order to examine these motives we need to fully understand the content of the terms “Mergers and Acquisitions”.

“The ASB has defined a “merger” in FRS 6 Acquisitions and Mergers as: A business combination that results in the creation of a new reporting entity formed from the combing parties, in which the shareholders of the combing parties come together in a partnership for the mutual sharing of the risks and benefits of the combined entity, and in which no party to the combination in substance obtains control over the other, or is otherwise seen to be dominant, whether by virtue of the proportion of its shareholders’ rights in the combined entity, the influence of its directors or otherwise” (Barry Elliot, Jamie Elliot, Financial Accounting and Reporting, p.515). Particularly with the term “merger” it is meant the combination of at least two firms, at which the transfer of ownership is carried out, that is the transfer of all the elements of the capital, assets and liabilities, in order the firms that are merged do not exist legally, apart from one which continues its operations with its initial name.

However an “acquisition” or takeover can be described as the process in which a company behaves like a hunter and pursues another firm, with the aggressive intention to takeover it. Under the term acquisition it is meant the fully transfer of all the elements of a company to another, after the announcement of a public offer. In addition it has to be stressed that acquisitions can be friendly or hostile. Usually the acquiring company negotiates directly with the board of directors of the target firm, and after the terms of the deal have been agreed, the target shareholders are notified for the process.

So usually in the first case “merger” suggests that there is voluntary agreement between the two sides, while in the second case “acquisition” may suggest that there is one-sided desire for the combination of the two parties. The differentiation of these terms is usually made for accounting and legal reasons.