Mergers and Acquisitions- Terminology
Merger is an economic tool that is employed for elevating the long-standing success which is achieved by developing their functional competence. Mergers take place when the two firms mutually decide to combine their business. However, the process can take the form of an unfriendly subjugation.
Acquisitions can be either friendly or intimidating and takes place between the bidding and the targeted firm. Reverse acquisition take place when the target company is bigger than the firm which offered the takeover proposal. During the process the bidder has the right to buy the share of the targeted firm.
Important Terminology Related to Mergers and Acquisitions
Asset Stripping – Asset Stripping is the process in which a firm takes over another firm and sells its asset in fractions in order to come up with a cost that would match the total takeover expenditure.
Demerger or Spin off – Demerger refers to the practice of corporate reorganization. During this process a fraction of the firm may break up and establish itself as a new business identity.
Black Knight – The term generally refers to the firm which takes over the target firm in a hostile manner.
Carve – out – The procedure of trading a small part of the firm as an Initial Public Offering is known as carve-out.
Poison Pill or Suicide Pill Defense – Poison Pill is an approach which is adopted by the target firm to present itself as less likable for an unfriendly subjugation. The shareholders have full privilege to exchange their bonds at a premium if the buyout takes place.
Greenmail – Greenmail refers to the state of affairs where the target firm buys back its own assets or shares from the bidding firm at a greater cost.
Dawn Raid – The process of purchasing shares of the target firm anticipating the decline in market costs till the completion of the takeover is known as Dawn Raid.
Grey Knight – A firm that acquires another under ambiguous conditions or without any comprehensible intentions is known as a grey knight.
Macaroni Defense – Macaroni Defense is an approach that is implemented by the firms to protect them from any hostile subjugation. A company can prevent itself by issuing bonds that can be exchanged at a higher price.
Management Buy In – This term refers to the process where a firm buys and invests in another and employs their managers and officials to administer the new established business identity.
Hostile Takeover – Unfriendly or Hostile acquisitions takes place when the management of the target firm does not have any prior knowledge about it or does not mutually agree for the proposal. The disagreements between the chief executives of the target firm may not be long-lasting and the hostile subjugation may take up the form of friendly takeover. This practice is prevalent among the British and American firms. However, some of them are still against hostile subjugation.
Management Buy Out – A management buy out refers to the process in which the management buys a firm in collaboration with its undertaking entrepreneurs.