Stock swap is defined thus: "An acquisition in which the acquiring company uses its own stock to pay for the acquired company.
" "A method of exercising stock options where shares that the holder already owns are used to buy new shares at the exercise price.
" All the shareholders of the newly acquired company receive specified number of shares of the acquiring company's shares for each share they previously held in the acquiring company.
This is done with certain conditions.
The shareholders can no sell such shares immediately.
They are bound to wait for a period specified as per the terms of acquisition and allotment of shares.
Mergers and acquisitions, though commonly understood as the same processes, legally they are not.
Their implications are different.
The mode of finance is different.
A merger is the result of two companies, mostly of similar size, agreeing to co-exist as a new company.
This is known as the "merge of equals.
" Such merges are financed by stock swaps.
This is an arrangement where owners of such companies receive identical number of shares in the newly formed company.
Both the companies surrender their shares and the shares of the new company become the basis of replacement.
One administrative office manages the new union.
A merger is linked to share swap.
The idea behind such activities could be varied.
It is not the merger of a company at the disadvantageous position with the company in better placed, as is commonly believed.
It could be the union two equals.
The purpose may be to expand the operations with an eye on long term profitability.
The interests of shareholders of the company are usually well-protected.
Generally, the deal is beneficial to both the parties, unlike in hostile takeovers.
Shareholders do have the protection against hostile takeovers, but the business laws vary from State to State.
One such protection is known as the "poison pill.
" In the industrial environment strongly impacted by technological advances and internet revolution mergers have become common and popular.
They have also become viable and respectable alternatives for the survival of a company.
In the fast changing industrial scenario, and in the wake of severe international competition, strong measures to revamp the industry are considered necessary.
So, mergers could be due to reducing market competition and advertisement costs, as a preventive measure to lay off employees, to introduce new technology, remove problematic and inefficient management, reduce taxes, build a mega-empire, etc.
There could be any other hidden agenda, which is difficult for an ordinary individual to comprehend.
A visionary sees decades ahead, and the mergers could be part of such a grand design.
Cash payment is also one of the common tools employed in such exercises.
Mergers are of many types.
Some of them are: Horizontal merger means, the two companies that produce identical products in the same industry, decide on a common identity.
Vertical merges are when two companies at different stages of production of the same commodity, decide to combine.
Co-generic mergers are when the two firms are in the same general industry but the relationship is different.
For example, the merger between a commercial bank and a leasing company.
When two firms with entirely different industrial bases merge, such merges are known as Conglomerate mergers.
Mergers by swap and the ancillary processes are not simple as it looks on paper.
Many post-merger problems require great skill to handle and sometimes they may be beyond the comprehensions of the captains of the industry.
If one of the partners has concealed the information in relation to losses and liabilities, ticklish legal issues may crop up.
If the legal battle is long drawn-out one, besides the expenses devolved, it goes to hurt the image of the company.
At times, surplus staff may create trade-union problems.
" "A method of exercising stock options where shares that the holder already owns are used to buy new shares at the exercise price.
" All the shareholders of the newly acquired company receive specified number of shares of the acquiring company's shares for each share they previously held in the acquiring company.
This is done with certain conditions.
The shareholders can no sell such shares immediately.
They are bound to wait for a period specified as per the terms of acquisition and allotment of shares.
Mergers and acquisitions, though commonly understood as the same processes, legally they are not.
Their implications are different.
The mode of finance is different.
A merger is the result of two companies, mostly of similar size, agreeing to co-exist as a new company.
This is known as the "merge of equals.
" Such merges are financed by stock swaps.
This is an arrangement where owners of such companies receive identical number of shares in the newly formed company.
Both the companies surrender their shares and the shares of the new company become the basis of replacement.
One administrative office manages the new union.
A merger is linked to share swap.
The idea behind such activities could be varied.
It is not the merger of a company at the disadvantageous position with the company in better placed, as is commonly believed.
It could be the union two equals.
The purpose may be to expand the operations with an eye on long term profitability.
The interests of shareholders of the company are usually well-protected.
Generally, the deal is beneficial to both the parties, unlike in hostile takeovers.
Shareholders do have the protection against hostile takeovers, but the business laws vary from State to State.
One such protection is known as the "poison pill.
" In the industrial environment strongly impacted by technological advances and internet revolution mergers have become common and popular.
They have also become viable and respectable alternatives for the survival of a company.
In the fast changing industrial scenario, and in the wake of severe international competition, strong measures to revamp the industry are considered necessary.
So, mergers could be due to reducing market competition and advertisement costs, as a preventive measure to lay off employees, to introduce new technology, remove problematic and inefficient management, reduce taxes, build a mega-empire, etc.
There could be any other hidden agenda, which is difficult for an ordinary individual to comprehend.
A visionary sees decades ahead, and the mergers could be part of such a grand design.
Cash payment is also one of the common tools employed in such exercises.
Mergers are of many types.
Some of them are: Horizontal merger means, the two companies that produce identical products in the same industry, decide on a common identity.
Vertical merges are when two companies at different stages of production of the same commodity, decide to combine.
Co-generic mergers are when the two firms are in the same general industry but the relationship is different.
For example, the merger between a commercial bank and a leasing company.
When two firms with entirely different industrial bases merge, such merges are known as Conglomerate mergers.
Mergers by swap and the ancillary processes are not simple as it looks on paper.
Many post-merger problems require great skill to handle and sometimes they may be beyond the comprehensions of the captains of the industry.
If one of the partners has concealed the information in relation to losses and liabilities, ticklish legal issues may crop up.
If the legal battle is long drawn-out one, besides the expenses devolved, it goes to hurt the image of the company.
At times, surplus staff may create trade-union problems.
SHARE
