An acquisition occurs when one company buys another company and the
company that was purchased no longer exists. Technically, mergers and
acquisitions are two different types of transactions. However, since they
are very similar, they are grouped together and commonly referred to as
M&A’s. Wall Street investment bankers usually have an M&A department
to handle these types of business deals.

Let’s take a closer look at mergers. When two companies agree to
merge into a new company, there will be a financial transaction to close the
deal. The two companies must come to an agreement on how this
transaction will be handled. There will be an exchange of either stock or
cash, or both, to close the deal.

In some cases, the stock of both companies will be surrendered and
new stock will be issued to the shareholders of both companies. For
example, Company A and Company B are merging to form Company AB.

The stocks of Company A and Company B will be surrendered. The new
company will issue new shares of stock called Company AB that will be
distributed to all of the shareholders of Company A and Company B.
These new shares of stock will replace the old shares of stock that the
shareholders surrendered.

In other cases, the stock of Company A will be retained and the stock of
Company B will be surrendered. Shareholders of Company B will then
receive shares of Company A to replace the shares of Company B that
they own. For example, the merger agreement may say that shareholders
of Company B will receive 1.25 shares of Company A stock for each share
of Company B stock that they own, or perhaps 1.35 shares of Company A
stock for each share of Company B stock that they own.

In some cases, a merger may be completed with a combination of cash
and stock, or just cash. For example, the shareholders of Company B may
receive 1.30 shares of Company A stock and $10.00 in cash for each share
of Company B stock that they own. Sometimes, shareholders of Company
B may receive just cash for their shares of Company B stock. The merger
agreement may say that they will receive $25.00 per share for each share
of Company B stock that they own.

When an agreement to merge has been reached between two
companies, the board of directors of each company will vote to approve the
merger. They will also recommend that shareholders of both companies
vote to approve the merger. The shareholders of both companies then
have a chance to voice their opinion and vote whether to approve the
merger or not. In most cases, these votes by the board of directors and the
shareholders of both companies go according to plan and the mergers are
approved by both sides.

The merger may also have to go through regulatory approvals.
Depending on the type of businesses involved, they may need regulatory
approval from the Federal Trade Commission or the Federal
Communications Commission, or other regulatory bodies.

Now, let’s take a closer look at acquisitions. Acquisitions are more
straightforward than mergers. The two companies involved in an
acquisition will announce that one company is acquiring the other
company. Company A will acquire Company B, and Company B will no
longer exist. There will be a financial transaction to complete the
acquisition. The acquisition may be completed with stock, or a combination
of stock and cash, or just cash.

For example, the shareholders of Company B may receive 1.30 shares
of Company A stock for each share of Company B stock that they own.
Or, the shareholders of Company B may receive 1.30 shares of Company
A stock and $10.00 in cash for each share of Company B stock that they
own. Or, shareholders of Company B may receive just cash for their
shares of Company B stock. The acquisition agreement may say that they
will receive $35.00 per share for each share of Company B stock that they
own.

When an acquisition agreement has been reached between two
companies, the board of directors of each company will vote to approve the
acquisition. They will also recommend that shareholders of both
companies vote to approve the acquisition. The shareholders of both
companies then have a chance to voice their opinion and vote whether to
approve the acquisition or not. In most cases, these votes by the board of
directors and the shareholders of both companies go according to plan and
the acquisitions are approved by both sides.

The acquisition may also have to go through regulatory approvals.
Depending on the type of businesses involved, they may need regulatory
approval from the Federal Trade Commission or the Federal
Communications Commission, or other regulatory bodies.

Mergers and acquisitions may be two different types of business deals;
however, for the purposes of the M&A Profits strategy, they are the same.