Acquisitions, Mutual Funds, Mergers and More!

What Is a Mutual Fund?

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A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. 

Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. 

A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. 

Each shareholder, therefore, participates proportionally in the gains or losses of the fund. 

Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments.

***What Are Mergers and Acquisitions (M&A)?

Mergers and acquisitions (M&A) is a general term used to describe the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions.

The term M&A also refers to the desks at financial institutions that deal in such activity.

***Types of Mergers and Acquisitions

The following are of some common transactions that fall under the M&A umbrella:


In a merger, the boards of directors for two companies approve the combination and seek shareholders' approval. 

For example, in 1998 a merger deal occurred between Digital Computers and Compaq, whereby Compaq absorbed Digital Computers. Compaq later merged with Hewlett-Packard in 2002. 

Compaq's pre-merger ticker symbol was CPQ. This was combined with Hewlett-Packard's ticker symbol (HWP) to create the current ticker symbol (HPQ).


In a simple acquisition, the acquiring company obtains the majority stake in the acquired firm, which does not change its name or alter its organizational structure. 

An example of this type of transaction is Manulife Financial Corporation's 2004 acquisition of John Hancock Financial Services, where both companies preserved their names and organizational structures.


Consolidation creates a new company by combining core businesses and abandoning the old corporate structures. 

Stockholders of both companies must approve the consolidation, and subsequent to the approval, receive common equity shares in the new firm. 

For example, in 1998, Citicorp and Traveler's Insurance Group announced a consolidation, which resulted in Citigroup.

*Tender offers

In a tender offer, one company offers to purchase the outstanding stock of the other firm, at a specific price rather than the market price. 

The acquiring company communicates the offer directly to the other company's shareholders, bypassing the management and board of directors. 

For example, in 2008, Johnson & Johnson made a tender offer to acquire Omrix Biopharmaceuticals for $438 million. 

While the acquiring company may continue to exist— especially if there are certain dissenting shareholders—most tender offers result in mergers.

*Acquisition of assets

In an acquisition of assets, one company directly acquires the assets of another company.

The company whose assets are being acquired must obtain approval from its shareholders. 

The purchase of assets is typical during bankruptcy proceedings, where other companies bid for various assets of the bankrupt company, which is liquidated upon the final transfer of assets to the acquiring firms.

*Management acquisitions

In a management acquisition, also known as a management-led buyout (MBO), a company's executives purchase a controlling stake in another company, taking it private. 

These former executives often partner with a financier or former corporate officers, in an effort to help fund a transaction. 

Such M&A transactions are typically financed disproportionately with debt, and the majority of shareholders must approve it. 

For example, in 2013, Dell Corporation announced that it was acquired by its founder, Michael Dell.

***What Is Net Worth?

Net worth is the value of the assets a person or corporation owns, minus the liabilities they owe. 

It is an important metric to gauge a company's health, providing a useful snapshot of its current financial position.

***What Is an Asset?

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. 

Assets are reported on a company's balance sheet and are bought or created to increase a firm's value or benefit the firm's operations. 

An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent.

***What Is a Liability?

A liability is something a person or company owes, usually a sum of money. 

Liabilities are settled over time through the transfer of economic benefits including money, goods, or services. 

Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses.

In general, a liability is an obligation between one party and another not yet completed or paid for. 

In the world of accounting, a financial liability is also an obligation but is more defined by previous business transactions, events, sales, exchange of assets or services, or anything that would provide economic benefit at a later date. 

Current liabilities are usually considered short-term (expected to be concluded in 12 months or less) and non-current liabilities are long-term (12 months or greater).

Liability may also refer to the legal liability of a business or individual. 

For example, many businesses take out liability insurance in case a customer or employee sues them for negligence. 

***What Is the North American Free Trade Agreement (NAFTA)?

The North American Free Trade Agreement (NAFTA) was implemented to promote trade between the U.S., Canada, and Mexico. 

The agreement, which eliminated most tariffs on trade between the three countries, went into effect on Jan. 1, 1994. 

Numerous tariffs—particularly those related to agricultural products, textiles, and automobiles—were gradually phased out between Jan. 1, 1994, and Jan. 1, 2008.

***What Is a Free Trade Agreement (FTA)?

A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. 

Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

The concept of free trade is the opposite of trade protectionism or economic isolationism.

***What Is a Tariff?

A tariff is a tax imposed by one country on the goods and services imported from another country.