Question

What do you think is a better method for a company to add another company merge or acquisition and why?

Answer 1

Answer:-

Merger is defined as the consolidation of two or more firms creating new firm ( with new name), and the old companies cease to exist. It leads to decrease in the competition. The types of mergers are horizontal, vertical and conglomerate.

Acquisition is when one firm buys another firm. The acquisition is done by buying only the assets or distinct business segment ( subsidiary) of the another firm or by acquiring the stake of more than 51% of stake of another firm. In this case the acquiring firm is acquirer and the acquired firm is target firm. In general the acquiring firm is bigger in terms of size and operations than the target firm. The types of acquisition are friendly, hostile and buyout.

Merger is more preferred over acquisition as merger creates the synergies in case of horizontal merger which helps the new entity formed by two or more firms to save operating costs and leads to increase in market share whereas the acquisition may or may not help with the synergies.

Merger helps in eliminating the dependence on suppliers in case of vertical integration if its a backward integration which helps in cutting costs. The forward integration when the company going up the supply chain which helps the firm's reliance on other firms. The acquisition may not be able to create the synergies as the subsidiary continues to operate under the old name.