Control of the Corporation, Mergers and Acquisitions

1192 Words Apr 22nd, 2010 5 Pages
The Agency Problem and Control of the Corporation, Mergers and Acquisitions

The Agency Problem and Control of the Corporation

Corporate managers are the agents of shareholders. This relation creates a problem for shareholders who must find ways to induce managers to pursue shareholders interests. Financial managers do act in the best interest of the shareholders by taking action to increase the stock value. However, in large corporations ownership can be spread over a huge number of stockholders. It has been mentioned that this agency problem arises whenever a manager owns less than 100 percent of the firm’s shares. Because the manager bears only a fraction of the cost when his behavior reduces the firm value, he is unlikely to
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The firms are often of about the same size. Both companies ' stocks are surrendered and new company stock is issued in its place. For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created.
• In practice, however, actual mergers of equals don 't happen very often. Usually, one company will buy another and, as part of the deal 's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable. An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to in the time, and is still now, as a merger of the two corporations. 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 concern, 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

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