CHINA / Backgrounder
Mergers and Acquisitions
(chinadaily.com.cn)
Updated: 2006-10-19 11:22
A general term used to refer to the consolidation of companies. A merger
is a combination of two companies to form a new company while an
acquisition is the purchasing of one company by another with no new
company being formed.
Merger
When one company purchases another company of an approximately similar
size, the two companies come together to become one.
Two companies usually agree to merge when they feel that they can do
something together that they can't do on their own.
For example, AOL and Time Warner merged a few years back in hopes that
they could both gain something. AOL wanted access to Time Warner's cable
network. Time Warner wanted access to AOL's users (to promote movies and
other Time Warner products) as well as AOL's extensive internet content.
Acquisition
An acquisition is when one larger company purchases a smaller company.
Usually, the company that is being acquired typically sees its stock
price appreciate right after the news is announced. The company doing the
buying usually sees its stock price fall.
Sometimes mergers and acquisitions can turn ugly. Watch out for your
companies if this happens, because sometimes the stock prices can drop
significantly on the news.
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