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Figure 30.2Corporate Expansion TechniquesCategory Description Example LiabilitiesMerger andConsolidationIn merger, one company mergeswith another; in consolidation,two companies merge and a newcompany results.Approval by boards andshareholders of bothcorporations.Debts and product liabilityflow to the new orsurviving company.Asset AcquisitionOne corporation buys all theproperty of another corporation.Approval by board andshareholders of acquiredcompany.Debt usually does notflow to the buyer;product liability may flowto the buyer.Stock AcquisitionOne corporation (the suitor) makesa tender offer to the shareholdersof another company (the target); ifenough of the target shareholdersaccept and sell, the suitor takescontrol of the target.Approval of enoughshareholders to give thesuitor control.Debt and product liabilityflow to the suitor.CORPORATE EXPANSIONTECHNIQUESBusinesses are organized in the hope ofexpanding and making money. If youwere a shareholder, which expansiontechnique would you prefer?shareholders of the disappearing corporation become shareholdersof the new corporation. Liabilities may also flow to the new corporation,including potential lawsuits, such as those for product defectsor for dumping toxic waste.Asset AcquisitionAs the name suggests, in an asset acquisition one corporationagrees to purchase the assets or property of a second corporation. Forinstance, a corporation might sell its building and all of its equipment.The shareholders and the board of directors of the corporation sellingthe assets must approve this transaction. One advantage to asset acquisitionis that, in general, the debts and the liabilities of the selling corporationdo not transfer to the buying corporation. The reason is thatthe only thing actually transferred is ownership of the property. If a corporationis heavily in debt, it might decide to sell its assets to anothercorporation to raise cash quickly to pay off those debts.Chapter 30: Corporate Regulation and Expansion 655