How Mergers and Acquisitions Impact Investors
Corporate mergers and acquisitions can have a significant impact on the value of stock held by investors. But apart from the potential for sudden price changes for impacted shares, what else do investors need to know about mergers and acquisitions?
While they're generally lumped together and can have similar motivations, mergers and acquisitions are different. A merger occurs when companies combine to create a new entity. Shareholders of the original premerger companies receive shares in the new firm at a predetermined formula. The shares aren't usually distributed evenly as one company is normally valued higher than the other.
In an acquisition, one firm purchases and absorbs the other, retaining its own corporate structure. Shareholders of the target firm receive shares in the parent--or cash or other compensation--based on the agreed-upon takeover price.
Source Fool.com
