Monday, April 27, 2009


Acquisition means buying of one company by another called as the target company. An Acquisition may be friendly or hostile. In former case, the companies cooperate in negotiations leading to both side willing to merge. But in later case, the acquisition of target is somewhat unwilling to be bought or the target's board has no prior knowledge of the offer.

Acquisition in most cases refers to the purchase of a smaller firm by a larger one. Sometimes however a larger firm may be acquired by a smaller firm. This is known as Reverse Takeover.

Acquisition may be by purchasing of shares, and therefore control of the target company. Ownership control of the company in turn conveys effective control over the assets of the company. This form of transaction carries with it all the liabilities accrued by the business in the past.

Another form may be by buying the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. A disadvantage of this structure is the tax that many jurisdictions impose on transfers of the individual 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 seller's shareholders.

These acquisitions may lead to changes in Earning per Share(EPS), changes may be positive or negative. In one case the EPS may increase this is a case when a company with higher P/E ratio acquires one with low P/E ratio. In other case EPS decreases, when a higher P/E ratio company is acquired by a lower P/E ratio marked comapny.

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