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In merger the Manchester uniteded, the acquiring firm is absorbing all the merging company
assets and liabilities and later acquired company ceased to exist. Whereas in consolidation, it is
same as merger except two companies both the firm terminate their previous legal existence and
form part of the new firm.
Acquisition of share of target company as per Securities regulator guidelines which defer from
country to country. The acquiring firm requires to have sufficient shares of target company that
exercise control on target company.
Asset acquisition of target company is also a way to do acquisition. The target company
liabilities are also absorbed, those liabilities that are explicitly related to acquiring assets.
The success and failure of merger and acquisition depends upon perceived benefits arriving out
of this merger or acquisition. This is called synergy where shareholders expect their company's
post merger share price increases post acquisition. That buyer pay a premium for post merger
synergy they expect and for sellers that premium represents company's future prospects. In other
words, the success of merger is measured by whether value of the buyer is enhanced by the
action.
Also, the market participant along with acquiring company and target company base their
decision on popular financials such as EARNING PER SFARE, MARKET VALUE PER
SHARE, BOOK VALUE PER SHARE.as well as NET PRESENT VALUE. Very important
success or failure has dependency on foreign exchange rate and rule of country, if cross boarder
merger or acquisition is there.
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Generally, companies project EPS for few years after the merger and compare the proforma

calculations to the EPS before the merger. If EPS increases, the merger also increases. If not, it is

considered as dilutive. If costs can be eliminated because of redundancies, it helps move toward

increased EPS. The costs can be related personnel which are not easy to quantify. Synergies may

increase EPS and create more positive environment that expected.

The use of each to consummate a merger indicates an opportunity cost where cash cannot be

used elsewhere. The use of stock increases the denominator of EPS hence diluting the earnings

for the shareholders. It is not considered a poor option until the increase in numerator justifies

the effect on the denominator. The current stock price of the two companies computes the

exchange ratio and companies finds it easier to use stock when the value is high because it takes

lesser shares to reach specified acquisition price. The use of debt to consummate is related to the

increase in interest costs and hence debt is good choice when interest rates are low.

One issue to be considered is the cultural differences between two companies. If a company is

predominant whereas other company has a management style, the merger can create problem for

the individuals accustomed to be evaluated and treated in a different way.