ation.8 The federal level debate has been stimulated by an increasing frequency of foreign takeovers of American firms, an activity in which firms based in the United Kingdom and Japan have been particularly prominent.
5"The M&A Watch: Is This Any Way to Run A Company?" Financial Executive, March April 1988, 1, 3 4.
6J. Brooks, The Takeover Game (New York: Harper & Row, Publishers, 1987), 11.
7J. M. Tannon, and C. L. Stewart, "Did Indiana Decision Buoy Takeover Regulation?" Mergers and Acquisitions, September October 1987, 43 47; C. Yang, and J. Weber, "Is Delaware About to Harpoon the Sharks?" Business Week, 25 January 1988, 34.
8"SEC Chief Blasts State Laws," Pensions and Investments Age, 5 October 1987, 14.
JUSTIFICATIONS FOR CORPORATE MERGERS
Acquisition is a "generic term covering all forms of acquiring another firm, such as consolidation, holding company, merger, or purchase of assets with cash or stock."9 A merger is the combination of two or more firms. In most instances of merger, one corporation acquires the stock of another. The acquiring corporation then either retires the stock of the other corporation and dissolves the acquired corporation, or permits the acquired firm to continue operating in its own name as a wholly owned subsidiary.
Sensible motives for acquisitions and mergers are found when the positions of each company involved will be improved by the action. There are a number of these sensible motives, including (1) capital requirements by an acquired company, (2) the meshing of distribution systems, (3) complementing customer bases, and (4) similar reasons.
Often, one firm will acquire another with either low or no net earnings, or, possibly, with tax credits. In such instances, the acquiring firm may be able to reduce its own federal income tax liability. When an acquiring firm is able to reduce its federal income tax liability through acquisition or merger, ...