Mergers, Acquisitions, and Takeovers

On a general level, merger, acquisition, and takeover refer to a combination of two organizations into one larger entity. Virtually every major public corporation—as a merger partner, acquirer, or target—has been involved in an attempted or realized organizational combination as mergers, acquisitions, and takeovers (MA&Ts) have become a basic staple of corporate strategy. The overarching reason why firms enter into a merger or decide to acquire another company is the belief that the combination will allow the new entity to attain its strategic goals more quickly and less expensively than if the firm attempted to do it by internal growth alone. While proponents argue that wellplanned MA&Ts enhance both the value of the firm and the value of the firm to the larger society, critics respond that far too many of these combinations are undesirable and ill-conceived. In these latter instances, MA&Ts are suggested to create far more harm than benefit for an array of internal (e.g., shareholders, managers, employees) and external (e.g., customers, suppliers, unions, local communities) stakeholders, many of which are not directly considered in the decisionmaking process.

While the terms are often used interchangeably, there are some subtle differences. Acquisition refers to any transfer of ownership in which one organization is absorbed by another, merger is a combination in which two or more previously autonomous companies form a wholly new firm, and takeover refers to those situations where a company or an investment group gains enough shares of stock in a publicly traded company that it can control its governance via a plurality of votes for the board of directors. Merger typically reflects a sense of equality between the two organizations, whereas acquisition and takeover reflect the dominance of the acquiring organization over the target firm.

There are two fundamental sets of concerns raised about corporate MA&Ts: The first focuses on whether the combination will create economic value for shareholders; the second emphasizes the effect the combination will have on the companies' implicit contracts with other stakeholders and the larger society. These issues reflect both process and outcome considerations. From a process perspective, questions are typically raised about the appropriateness and fairness of the actions by the parties involved during combination planning, transaction, and implementation. In terms of outcomes, emphasis is placed on the combination's relative benefit or harm (direct and indirect) for all relevant stakeholders (including shareholders) and about the fairness and social desirability of these outcomes. Debate about these issues often comes down to questions about transparency, distributive justice, and the social role of the corporation and its responsibilities to a broader range of constituencies that go beyond shareholders per se.