Mechanics of a Merger

Merger is a popular way to improve the market position of a company and at the same time, to increase the level of profit through additional customer base and resources. There are several mechanics of a merger process. The mechanics of a merger process follows certain strategy.
The process starts with an offer by the company to the target company. This offer is provided only after the top management of the company is determined about the process. The next process is to purchase the shares of the target company. According to the norms, the prospective acquiring company can buy maximum 95% shares from the open market.

At the time of filing with SEC, the acquiring company must declare its intentions that if it wants to invest or wants the ownership of the company. The next step of merger procedure is deciding the exact price that is going to be offered to the target company.
To decide this price, the company takes suggestions from the investment banks and certain other advisors. At the same time, it is also decided that if the acquiring company wants to pay in cash or to pay through equities.
Just after this, the company announces the deadline for the investors of the target company. The investors or the shareholders of the target company may accept or reject the proposals.

After this, the target company has to response. The target company either admits to the terms and conditions of the acquiring company or wants to negotiate with the company. The decision depends on the top management of the target company and if they feel that the offer is acceptable, the deal is finalized. But in case the offered price is not working, the management of the target company negotiates with the acquiring company and tries to get more favorable terms and prices.

On the other hand, to save the company the target company provides extra shares to the stockholders at very low prices. But these shares are not offered to the acquiring company. On the other hand, the target company looks for any other acquiring company that can offer higher prices. If such a company is found, it is termed as White Knight Company.

At last when the target company is satisfied and accepts the price offered by the tender, there remains some formalities and once those are carried out, the merger is complete.

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Last Updated on : 27th June 2013

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