Chapter 11: Problem 11

What is a corporate merger? What is an acquisition?

Short Answer

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A corporate merger is when two or more separate companies voluntarily combine to form a new single entity with a new name, such as the merger of Exxon and Mobil to create ExxonMobil. An acquisition, or takeover, is when one company takes control of another by purchasing its assets, shares, or operations without forming a new entity, like Facebook's acquisition of WhatsApp.

Step by step solution

Definition of a Corporate Merger

A corporate merger is a process in which two or more separate companies combine to form a new single entity, often with a new name. This process is usually mutually agreed upon by both parties and can occur for various reasons, such as gaining market share, increasing efficiency, or accessing new resources and expertise.

Example of a Corporate Merger

A well-known example of a corporate merger is the merger between Exxon and Mobil in 1999. The two oil and gas companies joined forces to create ExxonMobil, which became the largest publicly traded petroleum and petrochemical enterprise in the world.

Definition of an Acquisition

An acquisition, also known as a takeover, is a process in which one company takes control of another by purchasing its assets, shares or operations. Unlike a merger, an acquisition does not involve the creation of a new entity. Instead, the target company is absorbed into the acquiring company, often retaining its original name or branding.

Example of an Acquisition

A notable example of an acquisition is Facebook's acquisition of WhatsApp in 2014. Facebook bought WhatsApp for a total of $19 billion, and WhatsApp continued to function as a separate entity under its original name, but with access to Facebook's resources and expertise. In summary, a corporate merger is the process of combining multiple companies into a single new entity, while an acquisition involves one company taking control of another without the formation of a new entity.

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