Question

Mergers and aquisitions result in the consolidation of assets and liabilities of two companies under one entity. However, a merger and an aquisition are two different types of market activity. Which of the following best describes a merger?Select the correct answer below:1. when an entity takes ownership of another entity's stock, equity interests, and assets2. the consolidation of assets and liabilities under two entities3. a legal consolidation of two entities into one entity4. all of the above

Answer 1

A legal consolidation of two entities into one entity.

Step-by-step explanation:

A merger takes place when two independent entities join hands together to form a separate autonomous third entity. The two entities merging remain fully autonomous when it comes to their nature of business and business operations. Entities merge in order to benefit from each others distinctive competencies while sharing common objectives. One of the best examples of merger is PepsiCo. Both Pepsi and Coca Cola individually possess their own autonomy but for the achievement of common objectives and exploitation of opportunities have joined hands.

The first option is merely an explanation for an acquisition where an acquirer exercises control by acquiring the target entities majority stocks (i.e >50% stock). In certain cases it's just the equity being acquired while in others the acquisition may also include assets and liabilities. In this case the acquirer becomes the parent and the target entity becomes the subsidiary.

The second option also pretty much relates to acquisition and takeover.

Hence, the third option is the answer.