Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 202

the focus of many investors. Once the acquisition process is completed, the target company ceases to exist and is fully absorbed into the acquiring company.

Sometimes an acquisition maybe partial in nature. The acquiring company maybe interested in only one or a few part(s) of the target company. As always, the shareholders must approve of this kind of acquisition before it is final.

There is yet another kind of acquisition, more popular in the 1980s, known as leveraged buyout (LBO), in which often a public company may become private. This usually happens to a financially troubled company where one investor or a group of investors borrow enough money (from a bank or a financial institution) secured by the company's assets or put up their own cash to buy the company. If the company is financially strapped, the shareholders may accept the offer (which gives them cash at a premium over their holdings) and sell the company. The assets of the company being bought out are used as leverage to secure the loan used for the buyout, and thus the expression leveraged buyout.

Mergers, on the other hand, are usually a lot less intense than acquisitions. Two companies competing in the same market may come to the decision that it would serve them best if they combine their resources and become a new entity. In order for two companies to merge, their respective boards, and ultimately their shareholders, must agree that such a move is in their best interest. Mergers are normally broken off amicably if one side decides against it. If the merger is completed successfully, the stock prices of both companies could move higher if investors also agree that the new merged company will be more viable than two companies operating separately. Partial mergers are another possibility, where the interested companies may merge


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