e is often a reduction in the workforce following the acquisition as some jobs become redundant, but the acquired company may be run as an independent subsidiary. Acquisitions are not necessarily the large purchasing the small; smaller companies can leverage (borrow) the resources necessary to purchase larger companies.
There are two kinds of mergers and acquisitions: friendly and hostile. Friendly transactions combine two organizations who want to join resources. Such alliances occur as organizations expand to new markets, as a struggling company looks for additional resources from a stronger one, or as a company targeted for a hostile takeover moves to find a friendlier partner in order to forestall the takeover. In a friendly action, the resulting two companies will continue their operations. In some cases, the operations will be combined in some fashion; in other cases, the operations will continue to be operated separately.
Hostile takeovers captured the nation's attention in the 1980s as executives such as T. Boone Pickens and Carl Icahn moved to acquire companies, then sell off significant portions of the organization. The result was a large influx of cash for the acquiring company, but the wholesale destruction of the target organization. Entire communities, shareholder groups and management of target companies adopted strategies to fight hostile takeovers in an attempt to keep their own jobs, to keep the community strong, or to prevent shareholder wealth from being diluted (Lipin, 1995, A1).
Mergers and acquisitions can be financed by cash, borrowed funds, or existing equity. Companies which have large amounts of cash on hand may choose to purchase other companies outright (although large amounts of cash can also make companies attractive takeover targets). In other cases, cash is combined with equity (stock) financing or is used to decrease the funds that have to be borrowed in order to conclude a specific ...