Question

SECTION B QUESTION THREE (i) Distinguish between a Merger and an Acquisition giving an illustration (6 marks) (ii) Explain the advantages of companies merging (7 marks) (iii) Explain why Mergers or acquisitions may fall (7 marks)

corporate finance

Answer 1

(i) Distinguish Between Merger and Acquisition Merger

There are voluntary in nature, where 2 or more companies decide, to merge one of them into other entity.

Acquisition

There are not voluntary. It is forced action

These are more, in the form of buyouts.

These are also known as hostile takeover, where strong entity takes over operational management of smaller entity.

Acquisitions involve large amount of cash outgo from large entity to the owner of the taken over entity.

Eg :- Facebook – Whats app (2014)

Facebook acquires in its biggest threat in chat space

(ii) Advantages of Merging

• Instantaneous Growth
• Entry into new markets
• Snuffing out of Competition
• Tax benefits
• Access to funds

(iii) Why Merger or acquisitions may fall

Some of the Key Reasons merger or acquisition failed:-

• Acquirers generally overpay;
• Value of Synergy is over-estimated;
• Poor post merger integration; and
• Psychological barriers.