Describe the three basic legal procedures that one firm can use to acquire another, and briefly discuss the advantages and disadvantages of each.

The three forms are merger, acquisition of stock, and acquisition of assets. A merger has the advantage that it is legally simple and, therefore, low cost, but it has the disadvantage that it must be approved by the shareholders of both firms. Acquisition by stock requires no shareholder meetings and management of the target firm can be bypassed, however, it can be a costly form of acquisition and minority shareholders may hold out, raising the cost of the purchase. Acquisition of assets requires the vote of the target firm shareholders and there is no danger of minority shareholders holding out, however, it can become quite costly to transfer title to all of the assets.