Corporate Expansion: Mergers and Acquisitions

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  • 0:05 Corporate Acquisitions
  • 1:12 Corporate Mergers
  • 2:06 Hostile Takeovers
  • 4:38 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Corporations can grow in two different ways: through expansion of their current business or through mergers and acquisitions. In this lesson, you'll learn about mergers and acquisitions. A short quiz follows.

Corporate Aquisitions

Meet Alvin. He's the CEO of a computer gaming company. Alvin is impressed with an innovative computer graphics technique that has been developed by a small computer software gaming startup. In fact, he thought about developing a similar process, but it would be costly and time-consuming. Alvin knows the startup is struggling for money and may not make it another year without help. Alvin believes the startup would make a fine acquisition. A corporate acquisition occurs when ownership of one company is transferred to another company. The company being acquired is often referred to as the target.

Alvin will try to purchase enough shares of the software company so his company has the right to control it. Sometimes, shares between the acquiring company and the other company are swapped, as well as purchased, if the companies are working together on the acquisition. Once Alvin's company has control of the target company, his company can either run it as a separate business or absorb it.

Corporate Mergers

Meet Mary. She's the CEO of a large doughnut franchisor with doughnut shops in every state and major city in the United States. She has a problem, though - nobody really cares for the coffee served at her shops. Mary knows about a small struggling coffee shop franchisor that hasn't done so well since it started to trade publicly on the stock market. But, she knows they make a great cup of java. Mary gets approval from her board of directors to pursue the merger of her company with the coffee franchisor.

A merger is a type of acquisition. If Mary is successful, her company will obtain a controlling share of the coffee company's stock. Mary will then absorb the company into her company. This means that the coffee shop will lose its identity and become part of Mary's company.

Hostile Takeovers

Meet Sharon. She is the president, founder and majority shareholder of the coffee company that Mary wants to acquire by merger. Sharon doesn't want to be acquired by Mary's company. Consequently, she is defending her company from a hostile takeover, which is an acquisition that is not approved by the management and board of directors of the company being acquired.

Sharon can use some specific tactics, generally referred to as 'shark repellant', to fight a hostile takeover. These tactics are called shark repellant because people who attempt hostile takeovers are often referred to as sharks. Let's take a look at different types of repellants:

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