Circular Merger
Categories: Entrepreneur, Banking, Company Management
Sounds like the marriage of eight people standing around an altar.
It’s not. It’s just a special type of merger that brings together two companies that sell completely different products. Even though they make different things or offer different services, they likely operate parts of their company similarly in, say, marketing, research, or operations. Could be a coincidence, or maybe both CEOs went to the same business school.
Only two things matter. First, the combination makes them stronger economically. The deal might be between firms that are part of the same supply chain of an end product. Or it could be a deal between firms operating in the same sector looking to bolster market share. On this matter, it’s all about “synergy,” the worst word in the history of business.
Second, one of the other company ceases to exist and loses its identity. The other survives, takes over all of the assets, and assumes debts with the approval of both executive teams.
As you might imagine, a lot of these deals fall apart over the decision of which company gets to survive and what executives get to stay.
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Finance allah shmoop what's the difference between mergers and acquisitions
all right people listen up Merger that's what's about to
happen here it's a merger acquisition that's what's about to
happen here Corporate america is kind of same thing when
two companies merge while they generally you know attracted to
each other hopefully respect each other they share stock or
combined the stocks of each side and you know combine
efforts and then and then cuddle afterwards if they're successful
at the merger than the combination of two roughly equals
yields more than the one plus one combo that made
them so two companies get together on generally equal ish
footing In that case acquisitions are a combining more like
that eating thing on much different footing The large company
eats or buys the target either using its more highly
valued stock currency or it's taft to do so Well
why would a company acquire another Well the target might
have one hundred employees ninety of whom can be fired
with massive expense savings after the acquisition For the acquirer
such that economically the acquisition won't just makes a whole
lot of financial sense acquisitions happen for market power reasons
As well like imagine the negotiating leverage that amazon would
have if it bought the next five biggest online retailers
Or maybe it'll just kill them Probably not legal for
them to buy him anyway given the monopoly like dominance
of amazon these days But wow that would be a
powerful set of acquisitions And that would be a good
reason for ems on to acquire a whole bunch Things
and bezos would grow even more powerful maybe too powerful