Mergers & Acquisitions

Merger & Acquisition: A Form of Corporate Restructuring / Corporate Action

Merger and acquisition (M&A), is a type of corporate restructuring (or corporate action) that is very common in the market. If we observe the business news, we will see many of such corporate actions. We may even be holders of stocks of some of companies involved in the M&A activities. At the end of this article, you as an investor, will be able to understand what M&A is and more importantly, how M&A activities can affect our investment decisions.

What is M&A?

M&A happens when two originally independent companies come together to become one business entity. The main motive that drives this corporate action is usually the synergy effect that would be created from the combination of the two companies. This will eventually bring about greater shareholders value. To put it simply, the value of two companies, when put together is expected to be greater than the two when they were separate companies. However, there are distinctions between merger and acquisition, which may have different impact to the investors.

Usually, the stocks of both companies will be surrendered and replaced by the new stocks issued by the newly formed company. This is often done under a willing and friendly environment, where the management of both companies are in agreement that the merger is in the best interest of both parties.