What is the difference between a merger and a consolidation? 2. Why might the po

Question

What is the difference between a merger and a consolidation? 2. Why might the portfolio effect of a merger provide a higher valuation for the participating firms? 3. What is the difference between horizontal integration and vertical integration? How does antitrust policy affect the nature of mergers? 4. How is goodwill now treated in a merger? 5. Suggest at least five ways in which firms have tried to avoid being part of a target takeover. 6. A number of years ago, Chevron and Texaco merged. The transaction totaled $45 billion; the merged company functions under the name Chevron. a. Go to www.finance.yahoo.com b. Type

Explanation / Answer

1.Mergers and consolidations are both ways in which companies can combine to add assets, increase market share and grow profits. A merger is different from a consolidation, but both follow essentially the same process. Merger In a merger, one company takes over another, including all assets and liabilities. The company that takes over remains active, while the one that is acquired essentially ceases to exist. Consolidation In a consolidation, two or more companies merge to form one new, larger company. All of each company's assets and liabilities then become the property of the new company. Integration When competing companies merge, the process is called horizontal integration. If a company merges with its suppliers or customers, a vertical integration occurs. Process Both mergers and consolidations are governed by federal and state laws, and follow a specified process. First, each company's board of directors has to approve the merger or consolidation. Second, stockholder of each company have to vote and approve. Third, the state in which the transaction will occur must give the go-ahead. Laws Federal and state governments have anti-trust laws which could stop a merger or consolidation, especially if the transaction would give the new company an unfair advantage, or monopoly, over its competitors.

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