Chapter 11: Problem 11

What is a corporate merger? What is an acquisition?

Short Answer

Expert verified

A corporate merger is when two or more companies combine to form a single new entity, resulting in the original companies no longer existing as independent entities. For example, if Company A and Company B merge to form Company AB, their assets, liabilities, and operations are now unified under Company AB. An acquisition, on the other hand, is when one company purchases another company with the intent to take control and ownership. For instance, if Company X acquires Company Y, Company X gains control over Company Y's assets, liabilities, and operations. Company Y may continue to operate as a subsidiary or become fully integrated into Company X's operations.

Step by step solution

Definition: Corporate Merger

A corporate merger is a process in which two or more separate companies combine to form a single new entity. This can be done through various legal structures, but the end result is that the original companies no longer exist as independent entities, and their assets, liabilities, and operations are combined into one unified company.

Example: Corporate Merger

An example of a corporate merger is when Company A and Company B decide to merge and form a new company called Company AB. In this case, Company A and Company B cease to exist as separate entities, and all their assets, liabilities, and operations are now under the umbrella of Company AB.

Definition: Acquisition

An acquisition is a process by which one company (the acquirer) purchases another company (the target) with the intent to take control and ownership of the target company. The acquired company may either be fully integrated into the acquiring company, or it may continue to operate as a subsidiary under the acquiring company's ownership.

Example: Acquisition

An example of an acquisition is when Company X decides to buy Company Y. In this case, Company X has acquired Company Y and has control over its assets, liabilities, and operations. Company Y may continue to operate as a subsidiary under Company X, or it could be fully integrated into Company X's operations.

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