FINANCIAL MANAGEMENT Q.1. What is financial management?

Explain finance managers role in fund raising, allocation & profit planning? Ans: Financial management study about the process of procuring & judicious use of financial resources with a view to maximizing the value of the firm thereby the value of the owners i.e equity shareholders in a company is maximized. It is primarily concerned with acquisition, fiancncing and management of assets of business concern in order to maximize the wealth of the firm to its owners. The focus of financial management is on efficient & judicious use of resources to attain the desired objective of the firm. The basic objective of financial management is 1) Procurement of funds from various sources like equity share capital, preference share capital, debentures, term loan, working capital finance. 2) Effective utilization of funds to maximize the profitability of the firm & the wealth of its owners. Financial management is an academic discipline which is concerned with decision-making. This decision is concerned with the size and composition of assets and the level and structure of financing. In order to make right decision, it is necessary to have a clear understanding of the objectives. Such an objective provides a framework for right kind of financial decision making. The objectives are concerned with designing a method of operating the Internal Investment and financing of a firm. There are two widely applied approaches, viz. (a) profit maximization and (b) wealth maximization. The term 'objective' is used in the sense of an object, a goal or decision criterion. The three decisions - Investment decision, financing decision and dividend policy decision are guided by the objective. Therefore, what is relevant - is not the over-all objective but an operationally useful criterion: It should also be noted that the term objective provides a normative framework. Therefore, a firm should try to achieve and on policies which should be followed so that certain goals are to be achieved. It should be noted that the firms do not necessarily follow them.

Finance managers role in fund raising: Fund raising is related to investment decision. These decisions are those which determine how scare resources in terms of funds available are committed to projects. The project may be as small as purchase of an equipment or as big as acquisition of an entity. Investment in fixed assets require supporting investment in working capital in the form of inventory, receivables, cash etc. The investment decision of a finance manager covers the following areas: y y y y y y y y y y y Ascertainment of total volume of funds, a firm can commit. Appraisal & selection of capital investment proposals. Measurement of risk & uncertainity in the investment proposals. Prioritization of investment decision. Funds allocation & its rationing. Determination of fixed assets to be acquired. Determination of levels of investmentin current assets i.e inventory, receivables etc. Buy or lease decisions Asset replacement decision. Restructuring, reorganization, mergers & acquisitions. Securities analysis & portfolio management.

Finance managers role in allocation: The financing objective asserts that the mix of debt & equity chosen to finance investment should maximize the value of investment made. The debt equity mix should minimize the hurdle rate allows the firm to take more new investment & increase the value of exsting investment. It relates to acquiring the optimum finance to meet the financial objectives & seeing that working capital is effectively managed. The finance manager involve in following finance decisions: y y y y Determination of degree or level of gearing. Determination of financing pattern of long term funds requirement. Determination of financing pattern of medium & short term funds requirement. Raising of funds through issue of financial instruments i.e. equity shares, preference shares, debentures, bonds etc.

y y y y y

Arrangement of finance for working capital requirement Consideration of interest burden on the firm. Consideration of debt level changes & its impact on firms bankruptcy. Taking advantage of interest & depreciation in reducing the tax liability of the firm. Consideration of cost of capital of individual components & weighted average cost of capital.

y y y

Analysis of impact of different levels of gearing on the firm & individual shareholder. Portfolio management. Consideration of impact of over capitalization & under capitalization on the firms profitability.

Consideration of foreign exchange risk exposure of the firm & decision to hedge the risk.

y y y y y

Maintaineance of balance between owners capital to outside capital. Maintaineance of balance between long term funds & short term funds. Evaluation of alternative use of funds. Setting of budgets & review of performance for control action. Preparation of cash flow & funds flow statement & analysis of performance through ratios to identify the problem area & its correction.

Finance managers role in profit planning: Dividend decisions concerned with the determination of quantumof profits to be distributed to the owners & the frequency of such payments. The dividend decision will effect in 2 ways: a. The amount to be paid out & its influence on share price b. The amount of profit to be retained for internal investment which maximizes the value of firm & ultimately improves the share value of the firm. The finance manager will involve in taking the following dividend decisions: y y Determination of dividend & retention policies of the firm. Consideration of impact of levels of dividend & retention of earnings on the market value of the share & the future earnings of the company.

Consideration of possible requirement of funds by the firm for expansion & diversification proposals for financing existing business requirements.

y y

Reconsideration of distribution & retentions policies in boom & recession periods. Considering the impact of legal & cash flow constraints on dividend policies.

Q.2 Define the terms shares & debentures. Distinguish between equity shares, preference shares & debentures? Ans: Debentures: The issue of debentures by public limited companies is regulated by

Companies Act 1956. Debenture is a document, which either creates a debt or acknowledges it. Debentures are issued through a prospectus. A debenture is issued by a company and is usually in the form of a certificate, which is an acknowledgement of indebtedness. They are issued under the company's seal. Debentures are one of a series issued to a number of lenders. The date of repayment is invariably specified in the debenture. Generally debentures are issued against a charge on the assets of the company. Debentures may, however, be issued without any such charge. Debenture holders have no right to vote in the meetings of the company. Kinds of Debentures 1. Bearer Debentures: They are registered and are payable to its bearer .They are negotiable instruments and are transferable by delivery. 2. Registered Debentures: They are payable to the registered holder whose name appears both on debenture and in the register of debenture holders maintained by the company. Registered debentures can be transferred but have to be registered again. Registered debentures are not negotiable instruments. PI registered debenture contains a commitment to pay the principal sum and interest. It also has a description of the charge and a statement that it is issued subject to the conditions endorsed therein. 3. Secured Debentures: Debentures which create a charge on the assets of the company, which may be fixed or floating, are known as secured debentures 4. Unsecured or Naked Debentures: Debentures, which are issued without any charge on assets, are unsecured or naked debentures, The holders are like unsecured creditors and may sue the company for recovery of debt. 5. Redeemable Debentures: Normally debentures are issued on the condition that they shall be redeemed after a certain period. They can, however, be reissued after redemption under Section 121 of Companies Act 1956. 6. Perpetual Debentures: When debentures are irredeemable they are called Perpetual. 7. Convertible Debentures: If an option is given to convert debentures into equity shares at stated rate of exchange after a specified period they are called convertible debentures. In our country the convertible debentures are very popular. On conversion, the holders cease

to be lenders and become owners. Debentures are usually issued in a series with a pari passu (at the same rate) clause which entitles them to be discharged rate ably though issued at different times. New series of debentures cannot rank pari passu with old series unless the old series provides so. 8. New debt instruments issued by public limited companies are participating debentures, convertible debentures with options, third party convertible debentures, and convertible debentures redeemable at premium, debt equity swaps and zero coupon convertible notes. 9. Participating Debentures: They are unsecured corporate debt securities, which participate in the profits of the company. They might find investors if issued by existing dividend paying companies. 10. Convertible Debentures with Options: They are a derivative of convertible debentures with an embedded option, providing flexibility to the issuer as well as the investor to exit from the terms of the issue. The coupon rate is specified at the time of issue. 11. Third Party convertible Debentures: They are debt with a warrant allowing the investor to subscribe to the equity of a third firm at a preferential vis--vis the market price. Interest rate on third party convertible debentures is lower than pure debt on account of the conversion option. 12. Convertible Debentures Redeemable at a premium: Convertible debentures are issued at face value with an option entitling investors to later sell the bond to the issuer at a premium. They are basically similar to convertible debentures but embody less risk. Shares: A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in the company becomes one of the owners of the company. Thus, a share is an indivisible unit of capital. It expresses the proprietary relationship between the company and the shareholder. The denominated value of a share is its face value: the total capital of a company is divided into number of shares. Shares are the marketable instruments issued by the companies in order to raise the required capital. Shares are issued by each and every company which goes public. These are very popular

investments which are traded every day in the stock market and the value of the share at the end of the day decides the value of the firm. A company when it decides to raise capital from public prepares a memorandum, capital required which is written down in this is called as authorized capital and then prospectus is prepared which is verified by SEBI. SEBI permits the company to raise the capital and as a result company offers it to the public this is known as Issued Capital. Part of the capital issued which is subscribed by public is Subscribed Capital. If the number of subscriptions is more than the number of shares then it is called as over-subscription and if the number of subscriptions is less then it is called as under subscription. The amount paid by the investor is Paid up Capital. The capital of the company can be divided into different units with definite value called shares. Holders of these shares are called shareholders or members of the company. There are two types of shares which a company may issue (1) Preference Shares (2) Equity Shares. (1) Preferences Shares Shares which enjoy the preferential rights as to dividend and repayment of capital in the event of winding up of the company over the equity shares are called preference shares. The holder of preference shares will get a fixed rate of dividend. Preference shares may be: (a) Cumulative Preference Share If the company does no earn adequate profit in any year, dividends on preference shares may not be paid for that year. But if the preference shares are cumulative such unpaid dividends on these shares go on accumulating and become payable out of the profits of the company, in subsequent years. Only after such arrears have been paid off, any dividend can be paid to the holder of quality shares. Thus a cumulative preference shareholder is sure to receive dividend on his shares for all the years our of the earnings of the company. (b) Non-cumulative Preference Shares The holders of non-cumulative preference shares no doubt will get a preferential right in getting a fixed dividend it is distributed to quality shareholders. The fixed dividend is to be paid only out of the divisible profits but if in a particular year there is no profit as to distribute it among the shareholders, the non-cumulative preference shareholders, will not get any dividend for that year and they cannot claim it in the next year during which period there might be profits. If it is not paid, it cannot be carried forward. These shares will be treated on the same footing as other preference shareholders as regards payment of capital in concerned.

(c) Redeemable Preference Shares Capital raised by issuing shares, is not to be repaid to the shareholders (except buy back of shares in certain conditions) but capital raised through the issue of redeemable preference shares is to be paid back by the raised thought the issue of redeemable preference shares is to be paid back to the company to such shareholders after the expiry of a stipulated period, whether the company is wound up or not. As per section (80) 5a, a company after the commencement of the Companies (Amendment) Act, 1988 cannot issue any preference shares which are irredeemable or redeemable after the expiry of a period of 10 years from the date of its issue. It means a company can issue redeemable preference share which are redeemable within 10 years from the date of their issue. (d) Participating or Non-participating Preference Shares The preference shares which are entitled to a share in the surplus profit of the company in addition to the fixed rate of preference dividend are known as participating preference shares. After the payment of the dividend a part of surplus is distributed as dividend among the quality shareholders at a particulate rate. The balance may be shared both by equity shareholders at a particular rate. The balance may be shared both by equity and participating preference shares. Thus participating preference shareholders obtain return on their capital in two forms (i) fixed dividend (ii) share in excess of profits. Those preference shares which do not carry the right of share in excess profits are known as non-participating preference shares. (2) Equity Shares Equity shares will get dividend and repayment of capital after meeting the claims of preference shareholders. There will be no fixed rate of dividend to be paid to the equity shareholders and this rate may vary form year to year. This rate of dividend is determined by directors and in case of larger profits, it may even be more than the rate attached to preference shares. Such shareholders may go without any dividend if no profit is made.

Q.3. What is Capital Rationing? Explain? The act of placing restrictions on the amount of new investments or projects undertaken by a

company. This is accomplished by imposing a higher cost of capital for investment consideration or by setting a ceiling on the specific sections of the budget. Defination: The act or practice of limiting a company's investment. That is, capital rationing occurs when a company's management places a maximum amount on new investments it can make over a given period of time. The two methods of capital rationing are forbidding investments over a certain amount or increasing the cost of capital for such investments. Capital rationing is most common when a company's previous investments have not performed well. Companies may want to implement capital rationing in situations where past returns of investment were lower than expected. For example, suppose ABC Corp. has a cost of capital of 10% but that the company has undertaken too many projects, many of which are incomplete. This causes the company's actual return on investment to drop well below the 10% level. As a result, management decides to place a cap on the number of new projects by raising the cost of capital for these new projects to 15%. Starting fewer new projects would give the company more time and resources to complete existing projects. The placement of restrictions on the quantity of new investments or projects that a company will undertake. Capital rationing is executed through the imposition of a higher cost of capital for investment or the establishment of a ceiling on specific sections of the budget. This decision implies that the costs of raising new capital are prohibitively high with respect to expected returns, creating a situation where capital investment opportunities must compete for funds. Capital rationing may be prompted by past investments that yielded lower returns than expected. This may happen, for example, if a company is involved in too many projects at once leaving most of them too incomplete to yield a substantial profit. In such a case capital rationing may facilitate the maximization of existing projects. Capital rationing has to do with the acquisition of new investments. More to the point, capital rationing is all about the acquisition of new investments based on such factors as the recent performance of other capital investments, the amount of disposable resources that are free to acquire a new asset, and the anticipated performance of the asset. In short, capital rationing is a strategy employed by companies to make investments based on the current relevant circumstances of the company.

Generally, capital rationing is utilized as a means of putting a limit or cap on the portion of the existing budget that may be used in acquiring a new asset. As part of this process, the investor will also want to consider the use of a high cost of capital when thinking in terms of the outcome of the act of acquiring a particular asset. Obviously, any responsible company will choose to employ strategies that support the productive use of disposable funds built within a capital budget. At the same time, it is important to understand what benefits can reasonably be expected from owing the asset in question.

Q.4. What is capital budgeting? Discuss the importance of capital investment planning & control.

Ans: Capital budgeting (or investment appraisal) is the planning process used to determine whether an organisation's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures Many formal methods are used in capital budgeting, including the techniques such as
y y y y y y

Accounting rate of return Net present value Profitability index Internal rate of return Modified internal rate of return Equivalent annuity

These methods use the incremental cash flows from each potential investment, or project. Techniques based on accounting earnings and accounting rules are sometimes used - though economists consider this to be improper - such as the accounting rate of return, and "return on investment." Simplified and hybrid methods are used as well, such as payback period and discounted payback period. Capital Budgeting is a project selection exercise performed by the business enterprise. Capital budgeting uses the concept of present value to select the projects. Capital budgeting uses tools such as payback period, net present value, internal rate of return, profitability index to select projects. Capital Budgeting Tools Payback Period Accounting Rate of Return Net Present Value Internal Rate of Return Profitability Index

Payback Period

Payback period is the time duration required to recoup the investment committed to a project. Business enterprises following payback period use "stipulated payback period", which acts as a standard for screening the project. Advantages Of Payback Period It is easy to understand and apply. The concept of recovery is familiar to every decisionmaker. Business enterprises facing uncertainty - both of product and technology - will benefit by the use of payback period method since the stress in this technique is on early recovery of investment. So enterprises facing technological obsolescence and product obsolescence as in electronics/computer industry - prefer payback period method. Liquidity requirement requires earlier cash flows. Hence, enterprises having high liquidity requirement prefer this tool since it involves minimal waiting time for recovery of cash outflows as the emphasis is on early recoupment of investment. Disadvantages Of Payback Period The time value of money is ignored. For example, in the case of project A Rs.500 received at the end of 2nd and 3rd years are given same weightage. Broadly a rupee received in the first year and during any other year within the payback period is given same weight. But it is common knowledge that a rupee received today has higher value than a rupee to be received in future. But this drawback can be set right by using the discounted payback period method. The discounted payback period method looks at recovery of initial investment after considering the time value of inflows. Net present value: Each potential project's value should be estimated using a discounted cash flow (DCF) valuation, to find its net present value (NPV). (First applied to Corporate Finance by Joel Dean in 1951; see also Fisher separation theorem, John Burr Williams: Theory.) This valuation requires estimating the size and timing of all the incremental cash flows from the project. These future cash flows are then discounted to determine their present value. These present values are then summed, to get the NPV. See also Time value of money. The NPV decision rule is to accept all positive NPV projects in an unconstrained environment, or if projects are mutually exclusive, accept the one with the highest NPV(GE).

The NPV is greatly affected by the discount rate, so selecting the proper rate - sometimes called the hurdle rate - is critical to making the right decision. The hurdle rate is the minimum acceptable return on an investment. It should reflect the riskiness of the investment, typically measured by the volatility of cash flows, and must take into account the financing mix. Managers may use models such as the CAPM or the APT to estimate a discount rate appropriate for each particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected. A common practice in choosing a discount rate for a project is to apply a WACC that applies to the entire firm, but a higher discount rate may be more appropriate when a project's risk is higher than the risk of the firm as a whole. Internal rate of return: The internal rate of return (IRR) is defined as the discount rate that gives a net present value (NPV) of zero. It is a commonly used measure of investment efficiency. The IRR method will result in the same decision as the NPV method for (non-mutually exclusive) projects in an unconstrained environment, in the usual cases where a negative cash flow occurs at the start of the project, followed by all positive cash flows. In most realistic cases, all independent projects that have an IRR higher than the hurdle rate should be accepted. Nevertheless, for mutually exclusive projects, the decision rule of taking the project with the highest IRR - which is often used - may select a project with a lower NPV. In some cases, several zero NPV discount rates may exist, so there is no unique IRR. The IRR exists and is unique if one or more years of net investment (negative cash flow) are followed by years of net revenues. But if the signs of the cash flows change more than once, there may be several IRRs. The IRR equation generally cannot be solved analytically but only via iterations. One shortcoming of the IRR method is that it is commonly misunderstood to convey the actual annual profitability of an investment. However, this is not the case because intermediate cash flows are almost never reinvested at the project's IRR; and, therefore, the actual rate of return is almost certainly going to be lower. Accordingly, a measure called Modified Internal Rate of Return (MIRR) is often used. Despite a strong academic preference for NPV, surveys indicate that executives prefer IRR over NPV, although they should be used in concert. In a budget-constrained environment, efficiency measures should be used to maximize the overall NPV of the firm. Some managers find it

intuitively more appealing to evaluate investments in terms of percentage rates of return than dollars of NPV. Accounting rate of return: Accounting rate of return, also known as the Average rate of return, or ARR is a financial ratio used in capital budgeting. The ratio does not take into account the concept of time value of money. ARR calculates the return, generated from net income of the proposed capital investment. The ARR is a percentage return. Say, if ARR = 7%, then it means that the project is expected to earn seven cents out each dollar invested. If the ARR is equal to or greater than the required rate of return, the project is acceptable. If it is less than the desired rate, it should be rejected. When comparing investments, the higher the ARR, the more attractive the investment. Over one-half of large firms calculate ARR when appraising projects. Profitability Index: Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment. The ratio is calculated as follows:

Assuming that the cash flow calculated does not include the investment made in the project, a profitability index of 1 indicates breakeven. Any value lower than one would indicate that the project's PV is less than the initial investment. As the value of the profitability index increases, so does the financial attractiveness of the proposed project. Rules for selection or rejection of a project:
y y

If PI > 1 then accept the project If PI < 1 then reject the project

Importance of capital investment planning & control: Capital Planning and Investment Control (CPIC) is a structured, integrated approach to managing information technology (IT) investments. It is the primary process for making investment decisions, assessing investment process effectiveness, and refining investment related policies and procedures. It ensures that all IT investments align with the agencys mission and support business needs while minimizing risks and maximizing returns through the investments lifecycle.

CPIC is mandated by the Clinger-Cohen Act which requires government agencies to use a disciplined process to acquire, use, maintain and dispose of information technology (IT). CPIC relies on a systematic approach to IT investment management in three distinct phases: Select, Control and On-Going Evaluation, to ensure each investments objectives support the business and mission needs of the Agency. It ensures that all IT investments align with the EPA mission and support business needs while minimizing risks and maximizing returns throughout the investment's lifecycle. The CPIC relies on a systematic approach to IT investment management in three distinct phases: select, control, and on-going evaluation, to ensure each investment's objectives support the business and mission needs of the Agency.

Q.5. Explain the need of corporate restructuring, mergers & Acquisitions?

Ans: Corporate restructuring : Restructuring is the corporate management term for the act of partially dismantling and reorganizing a company for the purpose of making it more efficient and therefore more profitable. It generally involves selling off portions of the company and making severe staff reductions. Restructuring is often done as part of a bankruptcy or of a takeover by another firm, particularly a leveraged buyout by a private equity firm. It may also be done by a new CEO hired specifically to make the difficult and controversial decisions required to save or reposition the company. Characteristics The selling of portions of the company, such as a division that is no longer profitable or which has distracted management from its core business, can greatly improve the company's balance sheet. Staff reductions are often accomplished partly through the selling or closing of unprofitable portions of the company and partly by consolidating or outsourcing parts of the company that perform redundant functions (such as payroll, human resources, and training) left over from old acquisitions that were never fully integrated into the parent organization. Other characteristics of restructuring can include: Changes in corporate management (usually with golden parachutes) Retention of corporate management sometimes "stay bonus" payments or equity grants Sale of underutilized assets, such as patents or brands Outsourcing of operations such as payroll and technical support to a more efficient third party Moving of operations such as manufacturing to lower-cost locations Reorganization of functions such as sales, marketing, and distribution Renegotiation of labor contracts to reduce overhead Refinancing of corporate debt to reduce interest payments A major public relations campaign to reposition the company with consumers Forfeiture of all or part of the ownership share by pre restructuring stock holders Mergers & Acquisition:
The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar

entities that can aid, finance, or help an enterprise grow rapidly in its sector or location of origin or a new field or new location without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations.

An acquisition is the purchase of one business or company by another company or other business entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquiree or merging company (also termed a target) is or is not listed on public stock markets. An additional dimension or categorization consists of whether an acquisition is friendly or hostile. Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. Whether a purchase is perceived as being a "friendly" one or a "hostile" depends significantly on how the proposed acquisition is communicated to and perceived by the target company's board of directors, employees and shareholders. It is normal for M&A deal communications to take place in a so-called 'confidentiality bubble' wherein the flow of information is restricted pursuant to confidentiality agreements. In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the board and/or management of the target is unwilling to be bought or the target's board has no prior knowledge of the offer. Hostile acquisitions can, and often do, ultimately become "friendly", as the acquiror secures endorsement of the transaction from the board of the acquiree company. This usually requires an improvement in the terms of the offer and/or through negotiation. "Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger occurs when a privately held company (often one that has strong prospects and is eager to raise financing) buys a publicly listed shell company, usually one with no business and limited assets. Distinction between mergers and acquisitions

Although often used synonymously, the terms merger and acquisition mean slightly different things. When one company takes over another and clearly establishes itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". 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 as a merger at the time. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly (that is, when the target company does not want to be purchased) it is always regarded as an acquisition.