In economics or business sense of the term, merger may be referred to as the establishment of a larger company as a result of the amalgamation of two companies. Mergers comprise the process of "stock swap". "Stock swap" is a process, in which the risk undertaken by the shareholders are equally borne by the shareholders of both the companies.
Many a times, mergers may appear to be similar to takeovers. But in case of takeovers, the name given to the new resulting company is a compound name consisting of the two company names. It also acquires a new brand.
Mergers can be classified as:
Occurs when the two merging companies belong to two different industrial sectors.
(ii) Vertical mergers:
A vertical merger is said to have taken place if two companies producing the same goods combine. The two companies should be at different stages of production.
(iv) Horizontal mergers:
Take place when two merging companies manufacture similar goods and belong to the same industry.
(v) Congeneric merger:
A merger is said to be congeneric when two companies belong to the same industry. They however, do not have any common customer, buyer, supplier.
Other types of mergers include:
- Reverse mergers
- Dilutive mergers
- Accretive mergers.
A common tool used for studying the aftermath of a merger on the market conditions include the Herfindahl index.
Regulatory bodies governing mergers:
US Federal Trade Commission, European Commission and United States Department of Justice are some of the regulatory bodies looking into matters related to mergers.
(B) Acquisitions: A company is said to have "Acquired" a company, when one company buys another company. Acquisitions can be either:
In case of friendly acquisition, the two companies cooperate with each other and settle matters related to acquisitions.
There are times when a much smaller company manages to take control of the management of a bigger company but at the same time retains its name for the combination of both the companies. This process is known as "reverse takeover".
Kinds of acquisitions:
There may be two types of acquisitions depending on the option adopted by the buying company. In one case, the buying company may buy all the shares of the smaller company. The other option is buying the assets of the smaller companies.