Definitions of Corporate Combinations
Acquisition:The purchase of one company by another, or the purchase only of certain assets of one company by another. Unlike a hostile takeover, an acquisition is agreeable to both parties. (At times, the term may be used synonymously with merger.
Active Salvage:A company with serious financial problems is forced to seek a merger, find a buyer, or declare bankruptcy. Also, the selling of assets (perhaps even the entire company) with the aim of salvaging some value for the troubled company.
Divestiture: Involves the sale or trading of assets. Planned divestitures may be undertaken as a part of corporate reorganization to reduce debt, to re-deploy capital, or to eliminate underperforming or noncore lines of business. Divestitures may be required as the result of new or changing regulatory circumstances. Divestitures may also be required as a condition in a pending merger or other combination, for example, to mitigate market power.
Foreign Investment: May be in the form of acquisition, merger, or joint venture. Domestic companies may invest outside the United States to get into nonregulated businesses as markets privatize. Foreign companies also invest in the United States to gain entry into the large U.S. market and into a stable economic environment.
Hostile Takeover: Acquisition of one company by another despite the opposition of the target company.
Joint Ventures and Alliances: Combinations of two or more corporations to cooperate for specific purposes but falling short of a merger. Such arrangements may be rather informal and general or very specific, even limited to a single project or purpose. Joint ventures may involve the formation of a separate company that in turn acquires others and develops new products and services on its own. Joint ventures may be open to others by selling shares (after the initial combination). Joint ventures have been used for decades, particularly in situations where high capital costs or risk are prevalent, such as power plant construction, pipeline construction, and exploration and development of difficult fields such as offshore. Joint ventures have become common among nonregulated subsidiaries and affiliates with the formation of marketing companies in telecommunications, software, and energy management.
Merger (Full): Complete legal joining together of two (or occasionally more) separate companies into a single unit. In legal terms only one entity survives.
Merger (Horizontal): Two similar entities merge to extend geographic coverage or increase market share. Examples are combinations of pipelines or especially local distribution companies.
Merger (Partial): Only certain units of one or both companies are involved in the merger. (For example, Chevron's gas unit merges with NGC. Chevron ends up owning about 25 percent of NGC while NGC operates all of Chevron's gas business.)
Merger (Vertical): May be achieved by combining two companies in different areas of the gas industry or through the combination of two or more entities in the same industry.