Difference Between Mergers and Acquisitions

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Though the two words mergers and acquisitions are often spoken in the same breath and are also used in such a way as if they are synonymous, however, there are certain differences between mergers and acquisitions.

Merger Acquisition
The case when two companies (often of same size) decide to move forward as a single new company instead of operating business separately. The case when one company takes over another and establishes itself as the new owner of the business.
The stocks of both the companies are surrendered, while new stocks are issued afresh. The buyer company “swallows” the business of the target company, which ceases to exist.
For example, Glaxo Wellcome and SmithKline Beehcam ceased to exist and merged to become a new company, known as Glaxo SmithKline. Dr. Reddy's Labs acquired Betapharm through an agreement amounting $597 million.

A buyout agreement can also be known as a merger when both owners mutually decide to combine their business in the best interest of their firms. But when the agreement is hostile, or when the target firm is unwilling to be bought, it is considered as an acquisition.

The Real Picture

It's quite rare to find actual mergers in practice. In majority of the cases, when one company buys another, according to the terms of the deal, it allows acquired company to proclaim that it's a merger, in spite of the fact that, it's actually an acquisition. Being bought out may send negative impression about the company, and hence the acquired company prefers to call it merger.

A Merger or an Acquisition?

So, the big question is when a purchase should be called a merger and when it should be described as an acquisition? It depends on how the two parties involved want to announce it like and how is it communicated to the board of directors, employees and shareholders of the company.

A purchase deal can also be denoted as merger if the CEOs of both the companies agree upon the decision. However, during an unfriendly deal, when target company doesn't wish to be purchased, the deal is called an acquisition.