Buying a company can mean buying its shares, its assets, or a shell
When one firm swallows another, the deal's legal shape matters as much as its price. Buy the shares and you inherit every old liability. Buy only the assets and you can leave the risky ones behind. And a private company can go public quickly by taking over an empty listed shell.
Legally, a merger folds two entities into one, while an acquisition means one party takes ownership of another's shares or assets. In practice the labels blur, since both put operations under unified control. In a consolidation, two firms form an entirely new business and neither survives on its own. Economists sort deals by relationship: horizontal between rivals in one industry, vertical when a firm buys a former supplier or customer, and conglomerate when the two businesses have nothing strategic in common.
Structure decides what the buyer carries. Purchasing shares acquires the company intact, along with all its past liabilities and risks. An asset purchase lets the buyer cherry-pick, which matters when future lawsuits over defective products, employee benefits or environmental damage loom, and it is common in technology deals aimed at particular intellectual property. The drawback is that many places, especially outside the United States, tax transfers of individual assets. The most common form is the triangular merger, in which the target merges with a shell owned by the buyer; in the reverse version the target survives, so its contracts and licences stay in place without transfer.
Size does not always run one way. In a reverse takeover a smaller firm gains control of a larger or older one and keeps the bigger company's name. Hostile bids, where the target's board resists or knows nothing beforehand, often turn friendly once the buyer sweetens the terms.
Results are mixed. Various studies find about half of acquisitions fail, though frequent serial acquirers fare better. Shareholders of the target tend to gain, while those of the buyer are more likely to lose. In the United States, the Clayton Act bars deals that may substantially lessen competition.
Source: Mergers and acquisitions
