Mergers and Acquisitions: Understanding the Difference

A quick scan of the headlines shows come confusion about the deal between AT&T and DirecTV. Some media outlets are calling it an acquisition while others say the 48 billion dollar purchase is a merger. Mergers and acquisitions are similar with a few important distinctions. In this post we’ll address the key differences between these two kinds of transactions.

What is a Merger?

One component of mergers and acquisitions is relational. Mergers are seen as the more friendly way of doing business. When two firms merge, both shed their old companies to form a new one. A good example is the merger between Daimler-Benz and Chrysler. In this scenario, both companies ceased to exist. They issued new stock as Daimler-Chrysler. Mergers are a common occurrence between two companies of equal size and standing.

What is an Acquisition?

An acquisition is when one company purchases another. The target company is absorbed by the purchaser and no longer exists. A recent example is the acquisition of Bell South by AT&T. AT&T bought Bell and reformed it as AT&T South.

Mergers and Acquisitions: The Benefits

There are several perceived benefits to merging or acquiring another company. A business can save money on labor and expand its reach into new markets. Also, bigger companies have more purchasing power. Finally, a target company might have a unique product or skill set that creates new revenue for the parent.

So is the deal between AT&T and DirecTV a merger or acquisition? The telecommunications giant is buying the satellite provider. However, DirectTV will still keep its name but will be operating under AT&T. Confused? You’re not alone. The media can’t seem to decide. Given the basic definitions we discussed earlier this would be an acquisition.

There are many types of mergers and acquisitions. If you’re considering either one make sure to get some assistance. Legal professionals, like the ones at Structure Law Group, are needed to sort through the mess.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

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