A merger occurs when two or more separate companies combine to form a single company. There are five common types of mergers: conglomerate, horizontal, vertical, product extension, and market extension.
A merger of equals is a merger of two or more companies where there is no designated acquiring company. Rather, the combined companies will have equal or close to equal board representation on the new board. Stockholders of each company surrender their shares and receive shares from the new company.
A true merger of equals is relatively rare. Usually, one company is actually acquiring another, but out of deference to management and employees or as a marketing tactic, the companies will refer to it as a merger instead of an acquisition.
An acquisition is the purchase of one company (the target) by another company (the acquirer). Acquisitions can occur through the purchase of the stock or other equity interests of the target company or through the purchase of all or a substantial amount of the target company’s assets.
Stock purchases: The acquirer buys the shares of the target company from its shareholders. As a result, the acquirer takes on all of the target company’s assets and liabilities. The complexity of a stock acquisition from a legal perspective depends on many factors, one of which is the number of shareholders in the target company.
Asset purchases: The acquirer buys some or all of the assets of the target company. Examples of assets can include equipment, vehicles, stock, inventory, or facilities. The acquirer need not purchase all of the target company’s assets, but rather has the option to choose which assets--and liabilities--to take. This is usually considered one of the advantages of asset purchases overstock purchases.
An experienced mergers and acquisitions lawyer can help you understand the advantages and disadvantages of stock vs. asset purchases.
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