Mergers are a tool used by companies to expand their operations and increase profitability. When companies engage in a merger, the acquiring company assumes all assets and liabilities of the target company. A merger, or merger of equals, is often financed by stock, known as a stock swap. There are two modes of merging by stock swap, which include one company taking will power of the other company and issuing cash and/or securities in the acquiring company to the former shareholders, or another method includes creating a third company which takes ownership over both(prenominal) companies in exchange for shares issues to the shareholders of the two companies (wikipedia.com). If stock is forwardered to acquire a company, the cost of the merger depends on the gains and those shares are paid to the acquired debauched (Brealey, Myers, & Marcus, 2004, p. 599).
Companies can also acquire other companies by give cash.
Acquisitions financed through debt are called leveraged buyouts or LBO. Often the assets of the company world acquired are used as collateral for the loans in supplement to the assets in the acquiring company. The benefit of a leveraged buyout is to allow companies to buy up large sums of money without committing a lot of their capital. In a cash transaction, the cost of the merger is not affected by the size of the merger gains (Brealey, Myers, & Marcus, 2004, p. 599). Also, the shares of a leveraged buyout are taken off the public market and are no longer traded on the open market.
There are sensible motives for companies to engage in mergers and acquisitions (M & A). Sensible motives that...If you want to get a full essay, station it on our website: Orderessay
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