Mergers And Acquisitions

Mergers and Acquisitions

Introduction

Mergers and acquisitions or M&A for short. are a big part of the corporate finance world. Every day, wall street in the united states for example arrange M&A transactions that bring together separate companies to make larger ones. However in Kuwait there were never any mergers act only one in acquisition (example: Kuwait investment company with trading and contracting investment company), When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spin-offs, carve-outs, or tracking stocks.

Not surprisingly, these types of actions often make the news. Deals can be worth hundreds of millions or even billions of KD, and they can dictate the fortunes of the companies involved for years to come. For CEOs, leading M&A can represent the pinnacle of their careers. Next time you flip open the al-Qabas or al-Watan newspaper's business section, odds are good at least one headline will announce some kind of M&A transaction.

Mergers and acquisition

Before going any deeper we must understand the meaning of both mergers and acquisitions :

let's begin with definitions. There are a number of terms used that frequently get confused partly because of their similarity in meaning.

• The definition (short summary):

1. Mergers:

A full joining together of two previously separate corporations or companies. A true merger in the legal sense occurs when both businesses dissolve and fold their assets and liabilities into a newly created third entity. This entails the creation of a new corporation, there were never any mergers companies to be mention in Kuwait, however in the united states there more than few for example the deals between many of the largest and most successful global firms such as Daimler-Chrysler, Chase-J.P. Morgan, McKinsey-Envision, UBS-Paine Webber, Credit Sussie-DLJ, Celltech-Medeva, SKB-Glaxo, NationsBank-Bank of America, AOL-Time Warner, Pfizer-Warner Lambert, Nestle-Purina….etc.

2. Acquisition:

Taking possession of another business. Also called a takeover or buyout. The process of gaining control, possession or ownership of a private portfolio company by an operating company or conglomerate.

• The main idea is:

a merger or acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies--at least, that's the reasoning behind M&A.

This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company.