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Mergers and acquisition

Mergers and acquisition

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Published by tanviraje
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Published by: tanviraje on Mar 28, 2010
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08/11/2013

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INTRODUCTIONTOMERGERSANDACQUISITIONSOFBANKING SECTOR 
1
 
1. INTRODUCTION TO MERGER AND ACQUISITIONOF BANKING SECTOR 
MERGERS
A merger occurs when two or more companies combines and the resulting firmmaintains the identity of one of the firms. One or more companies may merger withan existing company or they may merge to form a new company.Usually the assets and liabilities of the smaller firms are merged into those of larger firms. Merger may take two forms-1.Merger through absorption2.Merger through consolidation.
Absorption
Absorption is a combination of two or more companies into an existing company. Allcompanies except one loose their identify in a merger through absorption.
Consolidation
A consolidation is a combination if two or more combines into a new company. Inthis form of merger all companies are legally dissolved and a new entity is created. Inconsolidation the acquired company transfers its assets, liabilities and share of the
a
cquiring company for cash or exchange of assets.
ACQUISITION
A fundamental characteristic of merger is that the acquiring company takes over theownership of other companies and combines their operations with its own operations.An acquisition may be defined as “an act of acquiring effective control by onecompany over the assets or management of another company without anycombination of companies”.
TAKEOVER 
A takeover may also be defined as obtaining control over management of a company by another company.
1.1 DISTINCTION BETWEEN MERGERS ANDACQUISITIONS OF BANKS
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Although they are often uttered in the same breath and used as though they weresynonymous, the terms merger and acquisition mean slightly different things.When one company takes over another and clearly established itself as the newowner, the purchase is called an acquisition. From a legal point of view, the targetcompany ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.In the pure sense of the term, a merger happens when two firms, often of about thesame size, agree to go forward as a single new company rather than remain separatelyowned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued inits place.In practice, however, actual mergers of equals don't happen very often. Usually, onecompany will buy another and, as part of the deal's terms, simply allow the acquiredfirm to proclaim that the action is a merger of equals, even if it's technically anacquisition. Being bought out often carries negative
 
connotations, therefore, bydescribing the deal as a merger, deal makers and top managers try to make thetakeover more palatable.A purchase deal will also be called a merger when both CEOs agree that joiningtogether is in the best interest of both of their companies. But when the deal isunfriendly - that is, when the target company does not want to be purchased - it isalways regarded as an acquisition.Whether a purchase is considered a merger or an acquisition really depends onwhether the purchase is friendly or hostile and how it is announced. In other words,the real difference lies in how the purchase is communicated
to
and received by thetarget company's board of directors, employees and shareholders
.
1.2 TYPES OF MERGERS
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