Merger:
Introduction
It refers
to a situation when two or more existing firms combine together and form a new
entity. Or a merger is an agreement that unites two existing companies into one
new company. There are several types of mergers and also several reasons why
companies complete mergers. Mergers and acquisitions are commonly done to
expand a company’s reach, expand into new segments, or gain market share. All
of these are done to please shareholders and create value.
to a situation when two or more existing firms combine together and form a new
entity. Or a merger is an agreement that unites two existing companies into one
new company. There are several types of mergers and also several reasons why
companies complete mergers. Mergers and acquisitions are commonly done to
expand a company’s reach, expand into new segments, or gain market share. All
of these are done to please shareholders and create value.
A merger
is the voluntary fusion of two companies on broadly equal terms into one new
legal entity. The firms that agree to merger are roughly equal in term of size,
customer, scale of operations, etc. for this reason, the term ‘’ merger of
equal’’ is sometimes used.
is the voluntary fusion of two companies on broadly equal terms into one new
legal entity. The firms that agree to merger are roughly equal in term of size,
customer, scale of operations, etc. for this reason, the term ‘’ merger of
equal’’ is sometimes used.
Type of merger
There are
five types of company merger;
five types of company merger;
(1).
Conglomerate:
This is a
merger between two or more companies engaged in unrelated business activities.
The firm may operate in different industries or in different geographical
regions. A pure conglomerate involves two firms that have nothing in common.
merger between two or more companies engaged in unrelated business activities.
The firm may operate in different industries or in different geographical
regions. A pure conglomerate involves two firms that have nothing in common.
A
conglomerate merger was formed when the Walt Disney company merged with the
American broadcasting company ( ABC ) IN 1995.
conglomerate merger was formed when the Walt Disney company merged with the
American broadcasting company ( ABC ) IN 1995.
(2). Congeneric:
A
congeneric merger is also known as a product extension merger. It occurs when
two or more companies operate in the same market or sector with overlapping
factors, such as technology marketing, and production processes, research, and
development join to form a new business entity.
congeneric merger is also known as a product extension merger. It occurs when
two or more companies operate in the same market or sector with overlapping
factors, such as technology marketing, and production processes, research, and
development join to form a new business entity.
An
example of a congeneric merger is Citigroup’s 1998 union with travelers
insurance, two companies with complementing products.
example of a congeneric merger is Citigroup’s 1998 union with travelers
insurance, two companies with complementing products.
(3).
Market extension:
This type
of merger occurs between companies that sell the same products but compete in
different markets. Companies that engage in the market extension merger seek to
gain access to a bigger market and, a bigger client base. To extend their
markets.
of merger occurs between companies that sell the same products but compete in
different markets. Companies that engage in the market extension merger seek to
gain access to a bigger market and, a bigger client base. To extend their
markets.
Example;
eagle Bancshares and RBC Centura merged in 2002.
eagle Bancshares and RBC Centura merged in 2002.
(4). Horizontal:
A
horizontal merger occurs between companies in the same industries. The merger
is typically part of consolidation between two or more competitors offering the
same products or services.
horizontal merger occurs between companies in the same industries. The merger
is typically part of consolidation between two or more competitors offering the
same products or services.
Example:
the 1998 merger of Daimler-Benz and Crysler is considered as a horizontal
merger.
the 1998 merger of Daimler-Benz and Crysler is considered as a horizontal
merger.
(5).
Vertical:
When two
companies produce parts or services for a specific finished product merge, the
union is referred to as a vertical merger. A vertical, merger occurs when two
companies operate at different levels within the same industries supply chain
combine their operation.
companies produce parts or services for a specific finished product merge, the
union is referred to as a vertical merger. A vertical, merger occurs when two
companies operate at different levels within the same industries supply chain
combine their operation.
Example
of a vertical merger took place in 2000 when an internet provider America
Online (AOL) combined with media conglomerate Tim warner.
of a vertical merger took place in 2000 when an internet provider America
Online (AOL) combined with media conglomerate Tim warner.
If a new
company incorporated then it is called consolidation or amalgamation.
company incorporated then it is called consolidation or amalgamation.
If an
existing company is merged into another existing company it is known as
absorption.
existing company is merged into another existing company it is known as
absorption.
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DEFINITION
DEFINITION
Acquisition: definition
Meaning
The
acquisition is a situation whereby one company purchases most or all of
another’s share in order to take control. An acquisition occurs when a buying
company obtains more than 50% ownership in the target company.
acquisition is a situation whereby one company purchases most or all of
another’s share in order to take control. An acquisition occurs when a buying
company obtains more than 50% ownership in the target company.
A
transaction where one firm buys another firm with the intent of more
effectively using a core competence by making the acquired firm a subsidiary
within its portfolio of business.
transaction where one firm buys another firm with the intent of more
effectively using a core competence by making the acquired firm a subsidiary
within its portfolio of business.
· It also
known as a takeover or a buyout
known as a takeover or a buyout
· It is the
buying of one company by another.
buying of one company by another.
· In
acquisition two companies combine together to form a new company altogether.
acquisition two companies combine together to form a new company altogether.
Example: Company A + Company B = Company A.
Process
of merger and acquisition in India
The
process of merger and acquisition has the following steps:
process of merger and acquisition has the following steps:
- Approval
of the board of directors. - Information
to the stock exchange. - Application
in the high court. - Shareholders
and credit meetings. - Sanction
by the high court. - Transfer
of assets or liabilities. - Payment
by cash and securities
Maximum
waiting period 210 days from the filing of notice ( or the order of the
commission – whichever earlier ).
waiting period 210 days from the filing of notice ( or the order of the
commission – whichever earlier ).
Friendly and hostile acquisition
1). Friendly
acquisition :
A
friendly takeover is where the target company agrees to the acquisition offer
in a peaceful manner and in this case, the takeover is subject to the approval
of the shareholders of the target, company as well as that the regulators to
check if the deal complies with the antitrust laws. Friendly acquisition often
work towards a mutual benefit for both the acquiring and target companies.
friendly takeover is where the target company agrees to the acquisition offer
in a peaceful manner and in this case, the takeover is subject to the approval
of the shareholders of the target, company as well as that the regulators to
check if the deal complies with the antitrust laws. Friendly acquisition often
work towards a mutual benefit for both the acquiring and target companies.
2). Hostile
takeover:
In a
hostile takeover, the target company doesn’t want the acquirer to acquire it.
hostile takeover, the target company doesn’t want the acquirer to acquire it.
When the
takeover is without the consent of the board of directors of the target
company. It is hostile on the board of the directors of the target company then
the takeover is called ‘’hostile takeover’’.
takeover is without the consent of the board of directors of the target
company. It is hostile on the board of the directors of the target company then
the takeover is called ‘’hostile takeover’’.
Difference between acquisition and
merger
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s.n
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MERGER
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ACQUISITION
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1
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Merging of two organizations into one.
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Buying one organization by another.
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2
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It is a mutual decision.
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It can be a friendly takeover of hostile another.
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3
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The merger is expensive than acquisition (higher legal cost).
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The acquisition is less expensive than a merger.
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4
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Through merger, shareholders can increase their net worth.
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Buyers can not raise enough capital.
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5
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It is time-consuming and the company has to maintain so many legal issues.
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It is a faster and easier transaction.
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6
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Dilution of ownership occurs in the merger
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The acquirer does not experience the dilution of
ownership. |