Control of the Corporation, Mergers and Acquisitions

The direction Problem and Control of the Corporation, Mergers and Acquisitions The Agency Problem and Control of the Corporation Corporate managers are the agents of shareholders. This relation creates a business for shareholders who must find ways to induce managers to pursue shareholders interests. financial managers do act in the dress hat interest of the shareholders by taking pull through to increase the transmission line value. However, in large corporations ownership mickle be spread over a huge number of containholders. It has been mentioned that this bureau problem arises whenever a manager owns less than 100 percent of the sloppeds shares.Because the manager bears only a fraction of the cost when his manner reduces the unfluctuating value, he is unlikely to act in the shareholders best interest. lets just say that management and stockholder interests might differ, say that the firm is considering a parvenu investment, and the investment is expected to favorab ly wedge the share value, moreover is relatively a risky venture. Owners of the firm leave behind then wish to take the investment because the stock leave alone rise, but management may not with the fear of on that point jobs being lost. iodine obvious mechanism that can work to reduce the agency problem is increased manager insider shareholding.But, even where managerial wealth permits this is costly since it precludes cost-efficient risk bearing. Other mechanisms are also available. More concentrated shareholdings by egresssiders can induce increased monitoring by these outsiders and so mend performance by a firms own managers. Similarly, great outside representation on corporate control boards can result in more effective monitoring of managers, and the market for managers also can alter managerial performance by causing managers to become concerned with their paper among prospective employers.The available theory and evidence are consistent with the spot that stoc kholders control the firm and that stockholder wealth maximization is the relevant remainder of the corporation. The stockholders elect the board of directors, who, in turn, hire and fire management. Even so, there will undoubtedly be meters when management goals are pursue at the expense of the stockholders, at least temporarily. Mergers and Acquisitions An learning, also known as a takeover or a buyout or merger, is the buying of one political party (the target) by another. An acquisition may be friendly or hostile.In the former case, the companies cooperate in negotiations in the latter case, the takeover target is unwilling to be bought or the targets board has no prior knowledge of the offer. Acquisition normally refers to a corrupt of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established troupe and keep its give for the combined entity. This is known as a reverse takeover. Another attribute of acquisition is reverse merger a deal that enables a snobby accompany to get publicly listed in a short time period.A reverse merger occurs when a private company that has self-colored prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets. Achieving acquisition success has proved to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions influencing its outcome Although they are oft utter in the same breath and used as though they were synonymous, the ground merger and acquisition mean slightly different things.When one company takes over another and clearly establishes itself as the pertly owner, the buy is called an acquisition. From a legal point of view, the target company ceases to exist, the emptor swallows the business and the buyers stock continues to be traded. In the pure sense of the ter m, a merger happens when twain firms agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a merger of equals. The firms are often of about the same size. Both companies stocks are surrendered and new company stock is issued in its bug out.For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created. In practice, however, actual mergers of equals dont happen very often. Usually, one company will buy another and, as part of the deals terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. universe bought out often carries negative connotations, hence, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable.An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to in the time, and is still now, as a merger of the two corporations. The buyer buys the shares, and therefore control, of the target company being leveraged. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired inviolable as a going concern, this form of transaction carries with it all of the liabilities accumulated by that business over its past and all of the risks that company faces in its commercial environment. The buyer buys the assets of the target company.The cash the target receives from the sell-off is paid tail to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to cherry-pick the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may complicate future, unquantified damage awards such as those that could arise from litigation over bad products, employee benefits or terminations, or environmental damage.A disadvantage of this structure is the tax revenue that many jurisdictions, particularly outside the United States, impose on transfers of the one-on-one assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the sellers shareholders A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies.But when the deal is unfriendly that is, when the target company does not want to be purchased it is always regarded as an acquisition. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile an d how it is announced. In other words, the real dissimilitude lies in how the purchase is communicated to and received by the target companys board of directors, employees and shareholders. It is kind of normal though for M deal communications to take place in a so called confidentiality bubble whereby information flows are restricted collectible to