6.4. Mergers and Acquisitions

A merger is a combination of two companies in which a target company merges with an acquiring company. Usually, the target company will be absorbed into the acquiring company and cease to exist as a legal entity, but the target may occasionally be the one to survive, which might happen, for example, when the target has a more well-known brand name. Should the two companies be roughly equal in size and strength, both companies may dissolve and reappear as an entirely new company.

An acquisition is a combination of two companies in which one company takes a controlling interest in the other. With a stock acquisition, the acquiring company purchases all or a substantial portion of the shares of the target company’s stock, either with its own shares of stock, cash, or notes. The target company will lose its managerial autonomy, but it will continue as a legal enterprise.

A third kind of business combination is a transfer of assets. Here, the acquiring company, instead of buying the company itself, purchases all or some of its assets but not its liabilities. The target company continues to have an independent existence but in a reduced form or as a shell company. The assets may be purchased by a direct sale or through the creation of a shell company by the target company, which will transfer the assets for acquisition to the shell, which will merge with the