M&A: What is the difference between a merger and a takeover?

Both Merger or Acquisition shares the same goal namely  to combine two previously separate firms into a single legal entity so as to reap economies of scales and other synergies ultimately leading to the enhancement of shareholder value in the long term..

For a merger:

• It  normally involves two relatively equal companies, which combine to become one legal entity

• In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity.

• A merger normally requires mutual decision amongst the two parties.

However, compared to a merger, a takeover, or acquisition is characterized by the following:
·         There is no mutual decision amongst the two parties
·         Normally the purchase of a smaller company is by a much larger one. The larger company normally initiates a hostile takeover which meets with resistance from the smaller company’s management.
in an acquisition, the acquiring firm usually offers a cash price per share to the target firm’s shareholders or the acquiring firm’s share’s to the shareholders of the target firm according to a specified conversion ratio. Either way, the purchasing company essentially finances the purchase of the target company, buying it outright for its shareholders.