Acquisition of a Brand
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An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target’s board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity.
This method is often used for a company that wishes to expand itself against it competitors. Instead of attempting to compete with the other companies it will attempt to gain control them, through buying them. Also instead of removing their brand, the company will keep it to maintain the brand’s already established popularity and success while creating of illusion of a separate entity from that of the controlling company.
Any acquisition of a Brand/ Company can occur in two fashions:
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The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going business, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment.
The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to “cherry-pick” the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller’s shareholders.
Examples of Brand Acquisitions
Google- Baidu, AOL, Orion, Youtube, All the web, Ask Jeeves
America Online Inc. (AOL)- Time Warner
Royal Dutch Petroleum Co.- Shell Transport & Trading Co
AT&T Inc. – BellSouth Corporation
Comcast Corporation- AT&T Broadband & Internet Svcs Corporation
JP Morgan Chase & Co- Bank One Corp