10 Things Investors Should Know About Corporate Mergers

Usually, when news of potential deals emerge, company executives will use buzzwords like “synergies” and “profit acceleration” to tout the virtues of an acquisition but what do these mergers mean for shareholders? Here are some key things you need to know about the flurry of corporate buying and selling activity.

Written by Tim Lemke (WiseBread.com)

1. Sometimes they’re great

There are some mergers that will go down in history as tremendous success stories for both the companies and their shareholders.

In an ideal world, the two merging companies complement each other perfectly, and shareholders benefit as revenues and profits take off. The Exxon Mobil (NYSE:XOM) merger in 1999 is perhaps the best example from recent history of two companies getting together and making it work. Sirius XM Holdings, Inc. (NASDAQ:SIRI), Disney-Pixar (NYSE:DIS), and J.P. Morgan Chase & Co. (NYSE:JPM) also worked out great for most parties involved.

2. Sometimes they’re awful

We all remember the epic disaster that was the merger of AOL, the internet and email provider, with cable company Time Warner, Inc. (NYSE:TWX). The $164 billion deal took place in 2000, but things quickly went south after the dot-com bubble burst a year later. The promised “synergies” — you hear that word a lot when people talk about mergers — never materialized, and Time Warner finally spun off AOL back into its own company in 2009.

Other bad mergers include Sears Holding Corp. (NASDAQ:SHLD)-Kmart, Daimler-Chrysler, and Quaker Oats’ doomed purchase of Snapple [now Dr. Pepper Snapple Group, Inc. (NYSE:DPS)].

3. You can end up with shares or cash or both

Mergers and acquisitions can happen in different ways, with different impacts on the investor.

If you already own shares of Company X, and that company buys Company Y, you can end up with shares of the new combined company. This is known as a “stock for stock” deal.