In business, the term acquisition refers to the purchase of a target company by an acquiring company. In an acquisition, the ownership of assets held by the target company is transferred to the acquiring company. This sets acquisitions apart from mergers, in which the assets of two companies are combined to form a new pool of assets.
An acquisition may take place with the consent of the target company’s management, or it may be performed without the approval of the target company’s management through a hostile takeover.
Acquisitions are typically accomplished through the purchase of shares in the target company’s stock by the acquiring company. In the case of a friendly acquisition, shares are purchased by the acquiring company with the consent or event the encouragement of the target company’s management. Shareholders of the target company may be offered above-market prices to sell their shares to the acquiring company, or they may be offered shares in the acquiring company in exchange for their shares in the target company.
A hostile takeover is an acquisition in which an acquiring company purchases large amounts of shares in the target company on the secondary stock market in order to gain a majority voting share in the target company. Once it has obtained a majority voting share, the acquiring company uses its voting power to force the target company to sell out. The conditions of hostile takeovers are normally designed to be high advantageous for the acquiring company, and are typically disadvantageous to the target company, its employees and its remaining shareholders.
Acquisitions may also be accomplished by the purchase of the target company’s assets. This is typically the case with companies that are not corporations, although it may apply to corporations as well. In the case of a corporation, the money received by the target company for the sale of its assets to the acquiring company is passed on to its shareholders by way of dividend distributions. A company’s shareholders may agree to this type of acquisition if the prospective dividends generated by the sale are high enough to balance the depletion of the company’s stock. In some cases, an acquiring company may purchase only some of the target company’s assets.
There are a number of reasons why a company may acquire another company. A company may, for example, want to acquire a competing company in order to eliminate its competition. Companies may also acquire other companies in order to obtain manufacturing or research and development facilities which complement their own. Companies may also acquire other companies in order to access the technology or employees possessed by those companies. A company which has a strong presence in certain geographic regions may acquire another company which has a strong presence in other regions in order to gain access to those markets.
An acquisition may result in an increase in the value of a target company’s stock, particularly when the company is acquired through a friendly acquisition which is likely to increase the target company’s value. Hostile takeovers may also result in hikes in the value of target company stocks because typically, acquiring companies offer the shareholders of target companies above-market prices for their shares.
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