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Merger Or Acquisition?

Wed Feb 29, 2012 7:24 pm

A coworker and I were discussing the recent airline mergers and acquisitions and were at disagreement about what they actually were.

For example, I argued that the Delta-Northwest consolidation was a merger and he argued that it was an acquisition (Delta purchased Northwest).

When trying to find the answer on "Google" were both able to produce news stories that said "Delta purchases Northwest" and "Delta merges with Northwest". We also "googled" the Southwest-AirTran consolidation (we were both in agreement that this was an acquisition) and also found articles referring to it as the "Southwest-AirTran Merger".

Is the news media wrong or do we not know what we're talking about?
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RE: Merger Or Acquisition?

Wed Feb 29, 2012 7:45 pm

The concept is very gray. It isn't clear at all anymore. It really depends on what definition you are going to use.

In most economics circles, mergers are not very common. A merger results in the cancellation of both company stocks and creation of a new stock.

Very rarely does that happen. United and Continental did not merge in that sense because United acquired Continental based on the fact that the UAL stock continued to be traded and the CAL stock was exchanged for shares in UAL.
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RE: Merger Or Acquisition?

Wed Feb 29, 2012 8:10 pm

By the same token, in most operations circles, current airline situations are almost always mergers.
Acquisitions, in Airlines, in my opinion really only happen during bankruptcy. Think about AA purchasing TWA, and selling large parts of the fleet, etc. If AA had truely been interested in "merging" they certainly could have found great uses for some of the TWA aircraft they sold.

The management and operations staff from one organization are merging with the other organization, and in most cases, you emerge with the benefits of both organizations that help overcome the shortfalls of either of the single organizations.

This is very subjective of course, DL fans will argue the DL - NWA situation was GREAT, while NW fans will argue it was terrible... but that seems to be the case with most mergers/acquisitions.
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RE: Merger Or Acquisition?

Wed Feb 29, 2012 11:33 pm

The distinction is fuzzy and the definition varies depending upon whether the discussion is about:
1. The legal definition (from corporate and tax law perspectives, which may not always be the same thing)
2. The business objective
3. The PR objective

There is no ONE correct definition.
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RE: Merger Or Acquisition?

Thu Mar 01, 2012 3:58 am

These days, the only thing you could call a pure acquisition would be a hostile takeover. The vast majority of deals are agreed to by both parties beforehand.
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RE: Merger Or Acquisition?

Thu Mar 01, 2012 4:31 am

Pretty much what everyone above said. By the economics/business textbook definition:

A merger is when one company, the merging partner, issues an ownership interest in that company to the owners of the second company, the merged partner. The first company continues to exist under its original articles of incorporation, and the second becomes a wholly owned property of the first, and may be dissolved or kept as a subsidiary as the first company, now with the additional ownership of the owners of the second, wishes. That's what Delta and Northwest did. Delta issued Delta stock to the shareholders of Northwest. The former owners of Northwest are now among the owners of Delta. Delta continues to exist under its original articles of incorporation. Northwest is... I'm not sure if Delta dissolved it, or continues to keep it in their corporate structure as a subsidiary. It's also what America West and US Airways did, but with a twist. HP was the merging partner and US was the merged partner, but at the same time, HP changed their name to US Airways, which they could do since they owned the name as part of the merger. Nonetheless, the US that exists today exists under the America West corporate charter, and former US shareholders are now shareholders in the company.

A consolidation is when the shareholders of two or more companies create a new company under new articles of incorporation and a new corporate charter, and transfer the assets and liabilities of both (or all) previous companies to the new one. The new, consolidated company now exists, and the older ones are either dissolved or kept as subsidiaries of the new one. That's pretty rare these days, because it's lawyer-intensive, and therefore more expensive.

An acquisition, colloquially called a buy-out, is when one company offers cash or something of value other than an ownership interest in the company for the assets and liabilities of another company. The first company continues to exist. The second company is dissolved or becomes a subsidiary. The previous owners of the second company have no ownership in the remaining company. They are literally bought out.

An asset acquisition is when one company offers cash or something of value other than an ownership interest for all or some of the assets of a second company. Both companies continue to exist, but the assets transfered now belong solely to the first company. This is what AA did with TW. TW was being liquidated, and the value of the assets were used to pay off the remaining debtors.

There are other permutations, too, but those are the ones that happen most with airlines.

Again, these are economics textbook definitions. In common speech, the distinctions are not always made.

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