Recent Mergers or Acquisitions

Recent Mergers or Acquisitions

A "merger" or "merger of equals" is often financed by an all stock deal (a stock swap). An all stock deal occurs when all of the owners of the outstanding stock of either company get the same amount (in value) of stock in the new combined company. A merger adds value only if the two companies are worth more together than apart (Wikipedia, Free Encyclopedia, 2006).

An acquisition (of un-equals, one large buying one small) can involve a cash and debt combination, or just cash, or a combination of cash and stock of the purchasing entity, or just stock (Wikipedia, Free Encyclopedia, 2006).

Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal (Wikipedia, Free Encyclopedia, 2006).

Recent Examples of Mergers or Acquisitions

* Adobe acquired Macromedia

* AT&T merges with SBC

* MCI merges with Verizon

Strategies Employed and Financial Outcome

In case of Adobe and Macromedia, they are building on a shared heritage of redefining the way people and businesses communicate, and the similar vision of enabling the creation and delivery of compelling content and experiences across multiple operating systems, devices, and media. Acquiring Macromedia accelerates Adobe's strategy of delivering an industry-defining technology platform that provides more powerful solutions for engaging people with digital information. This platform meets a broader set of customer needs than either company could address on its own. And, through the enormous reach of Adobe Reader® software and the Macromedia Flash Player, we have access to a larger total addressable market and significant long-term growth opportunities -- especially in emerging areas such as mobility, the enterprise, and the web (Adobe Press Room, 2005).

The transaction closed on December 3, 2005. Adobe acquired Macromedia in an all-stock transaction valued at approximately $3.4 billion on the acquisition announcement date. Under the terms of the agreement, Macromedia stockholders received, at a fixed exchange ratio and in a tax-free exchange, 1.38 shares of Adobe common stock for each share of Macromedia common stock. As a result of the acquisition, shares of Macromedia were converted into the right to receive 1.38 shares of Adobe stock, and Macromedia stock is no longer being traded. The acquisition has been structured to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. As a result, Macromedia stockholders will not recognize gain or loss for United States federal income tax purposes upon the exchange of shares of Macromedia common stock for shares of Adobe common stock, except with respect to cash received in lieu of fractional shares of Adobe common stock (Adobe Press Room, 2005).

In case of AT&T and SBC merger, it builds on a 120-Year Heritage of Innovation, Service Quality, Integrity, and Reliability. This strategy enabled by the combination of SBC's and AT&T's complementary strengths. In fact, SBC local service and broadband capabilities -- 50.2 million access lines and 6.5 million DSL lines in service -- and the advanced and powerful AT&T global IP backbone network and software infrastructure will give the new company unparalleled IP assets in the marketplace. Together, the two companies can maximize those assets and develop new IP innovations more effectively than either company could on its own. In addition, SBC companies offer nationwide wireless coverage through Cingular Wireless, which has more than 52.3 million subscribers across the country. SBC owns 60 percent of Cingular (SBC News Room, October 27, 2005).

Under terms of the agreement, approved by the boards of directors of both companies, shareholders of AT&T received total consideration currently valued at $19.71 per share, or approximately $16 billion. AT&T shareholders will receive 0.77942 shares of SBC common

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