An acquisition, also known as a takeover, is the buying
of one company (the ‗target‘) by
another. An acquisition may be friendly or hostile. In the former case, the companiescooperate in negotiations; in the latter case, the takeover target is unwilling to be boughtor the target's board has no prior knowledge of the offer. Acquisition usually refers to apurchase of a smaller firm by a larger one. Sometimes, however, a smaller firm willacquire management control of a larger or longer established company and keep itsname for the combined entity. This is known as a reverse takeover.The buyer buys the shares, and therefore control, of the target company beingpurchased. Ownership control of the company in turn conveys effective control over theassets of the company, but since the company is acquired intact as a going business,this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment.The buyer buys the assets of the target company. The cash the target receives from thesell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entireassets. A buyer often structures the transaction as an asset purchase to "cherry-pick"the assets that it wants and leave out the assets and liabilities that it does not. This canbe particularly important where foreseeable liabilities may include future, unquantifieddamage awards such as those that could arise from litigation over defective products,employee benefits or terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outsidethe United States, impose on transfers of the individual assets, whereas stocktransactions can frequently be structured as like-kind exchanges or other arrangementsthat are tax-free or tax-neutral, both to the buyer and to the seller's shareholders.The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate asituation where one company splits into two, generating a second company separatelylisted on a stock exchange.
In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cashpayment to the target. Stock swap is often used as it allows the shareholders of the twocompanies to share the risk involved in the deal. A merger can resemble a takeover butresult in a new company name (often combining the names of the original companies)and in new branding; in some cases, terming the combination a "merger" rather than anacquisition is done purely for political or marketing reasons.