When a company (typically referred to as the ‘acquirer’, ‘buyer’ or ‘bidder’) purchases a second, usually smaller, company (called the ‘acquiree’ or ‘target’); the second company can either be continued as a separate legal entity or ceases to exist and the assets of the target are then integrated into the buying company.
If both companies cease to exist and a third company is created from the two legacy companies, the term generally used is ‘merger’. The actual stake that is considered to take control over another company varies according to the legal juristiction. In many cases, it is the minimum of 50% plus one share. There are many occasions where companies acquire either minority stakes or hold a block in another company which might later lead to acquiring additional or remaining shares in the other company. Many strategic investors prefer to take complete (100%) control of the target target while most financial investors prefer to spread the risks and acquire lower stakes.
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Most M&A deals are structured as an acquisition. For example, when Kraft, the American food conglomerate, announced in early November 2009 that it would seek to purchase Cadbury, the UK-based confectionary company, Kraft intended to acquire all of Cadbury. Thus, when the deal was finalised in January 2010, the board of Cadbury agreed to recommend to its shareholders to sell all of their shares to Kraft.
Following the deal closing later that year, the Cadbury shares ceased to exist and no longer traded on the London Stock Exchange. Cadbury shareholders received a combination of cash and Kraft shares in exchange for their Cadbury shares.