A general term used to refer to the consolidation of companies. A merger is a
combination of two companies to form a new company while an acquisition is the
purchasing of one company by another with no new company being formed.
When one company purchases another company of an approximately similar size,
the two companies come together to become one.
Two companies usually agree to merge when they feel that they can do
something together that they can't do on their own.
For example, AOL and Time Warner merged a few years back in hopes that they
could both gain something. AOL wanted access to Time Warner's cable network.
Time Warner wanted access to AOL's users (to promote movies and other Time
Warner products) as well as AOL's extensive internet content.
An acquisition is when one larger company purchases a smaller company.
Usually, the company that is being acquired typically sees its stock price
appreciate right after the news is announced. The company doing the buying
usually sees its stock price fall.
Sometimes mergers and acquisitions can turn ugly. Watch out for your
companies if this happens, because sometimes the stock prices can drop
significantly on the news.
(For more biz stories, please visit Industry Updates)