Chapter 11: Problem 11

What is a corporate merger? What is an acquisition?

Short Answer

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A corporate merger is the process where two or more companies combine their businesses to form a single, unified entity, typically to improve efficiency or market presence. An acquisition occurs when one company purchases another, taking control of its business, assets, and liabilities. The primary difference between a merger and an acquisition is the negotiation process and the nature of the transaction. A merger usually involves companies of similar sizes mutually agreeing to join, while an acquisition can involve a larger company taking over a smaller one. A merger example is the 1998 merger between Daimler-Benz and Chrysler Corporation, while an acquisition example is the 2006 acquisition of Pixar Animation Studios by The Walt Disney Company.

Step by step solution

Define Corporate Merger

A corporate merger is the process in which two or more companies combine their businesses to form a single, unified entity. This is typically done to improve the efficiency, competitiveness, or market presence of the combined organization.

Define Acquisition

An acquisition, on the other hand, occurs when one company purchases another company. In this case, the acquiring company takes control of the target company's business, assets, and liabilities. The target company then becomes a subsidiary or a division of the acquiring company.

Differentiate Between Merger and Acquisition

The primary difference between a merger and an acquisition lies in the negotiation process and the nature of the transaction. In a merger, the involved companies mutually agree to join their businesses, whereas, in an acquisition, the acquiring company seeks to take over the target company, which may or may not agree to the takeover. Another key difference is that a merger usually involves companies of similar sizes, while an acquisition can involve a larger company taking over a smaller one.

Example of a Corporate Merger

A well-known example of a corporate merger is the 1998 merger between Daimler-Benz and Chrysler Corporation, two automobile manufacturers. The resulting company, DaimlerChrysler, aimed to boost market presence and achieve economies of scale across the two original companies' global operations. However, the merger was not as successful as expected, and in 2007, they separated again, with Daimler keeping its original name and Chrysler being sold to another firm.

Example of an Acquisition

A famous example of an acquisition is the 2006 acquisition of Pixar Animation Studios by The Walt Disney Company. Disney paid $7.4 billion for Pixar and integrated the animation studio into its own business, with Pixar becoming a subsidiary of Disney. The acquisition allowed Disney to strengthen its position in the animation industry and to enjoy the creative and technical expertise of Pixar's talented workforce.