Merger and acquisitions try to achieve synergies between the companies, which bring horizontal, vertical or diversified growth (conglomerate mergers). There are different forms of merger or acquire companies:
1.Absorption or consolidation merger
2.Shares acquisition
3.Assets acquisition
4.Holding
1. Absorption or consolidation merger
Absorption or consolidation mergers are mergers which start with an agreement between the company managers. This initial agreement should be support by the General Meeting of Stockholders. To carry out the merger there are two possibilities:
- Absorption merger
- Consolidation merger
Absorption merger
It is when all company properties from the target company (assets, equity and liabilities) are absorbed by the acquiring company. In this cases the target company juridically disappeared. It is a simple operation but involved a higher risk for the acquiring company if the risk, liabilities and payment obligations of the purchased company are not correctly valuated.
Consolidation merger
It is when there are not purchased or acquiring company, both companies merger to create a new one. In this cases the companies have the similar conditions.
2. Shares acquisition
The acquiring company makes an offer to shareholders by buying their shares. The shareholders can accept or reject the offer, which is usually called tender offer. The acquisition price could be pay in cash, in shares of the resulting company or in both. In any case, this price should be higher than the market price, usually a 20%. The tender offer is directly to the shareholder and the managers opinions is not considered.
Friendly vs. Hostile
Real Decreto 1066/2007, de 27 de julio
- Under Spanish law it is mandatory make a tender offer when the company control is reached (article 3).
- It is considered that an organization or person reached the control of a company if directly or indirectly reaches vote rights of a 30% or higher (article 4).
- With an smaller participation, if the organization or person appoint a number of adviser which represent more than 50% of the board of directors in the 24 following months the acquisition date, it is considered to reached the control (article 4).
Main differences between Merger and Acquisition
| Capability to accept or reject | Acquisition process result |
| In mergers the agreement is between the boards of directors of both companies.
In acquisitions the agreement is between the board of directors of the acquiring company and the shareholders of the target company. |
In mergers it is possible that the target company disappeared or both disappeared to create a new company.
In acquisitions one company buy the other and get the control but their properties are not blended. |
3. Assets acquisition
A company can directly buy assets or even liabilities of other company, without considering shareholders. It is actually an assets transfer but could be use as part of the strategy of a future takeover. Bankruptcy proceedings represent an opportunity for a company to implement an asset acquisition strategy of growth.
A holding is a company which main or unique activity is buying and administrate other companies.
4. Holding
It can be considered a business integration with the objective of obtaining profit. To be able to influence in the target company, the acquiring company must buy at least a 51% of the company.
| Advantages of holding as acquiring system: | Shortcomings: |
| It is cheaper than mergers or acquisitions, because it is not necessary buying a large number of shares. | Double taxation. |
| It is not necessary paying bonus. |