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Mergers

Two companies merging can be more valuable than if they remained separate. An acquisition occurs when one company purchases another and becomes the new owner, while a merger combines two firms into a single new company. However, purchases are often called mergers when the CEOs agree it is in both companies' best interests. But if the deal is unfriendly, it will be called an acquisition.

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Ritudeb Chakraborty
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50 views2 pages

Mergers

Two companies merging can be more valuable than if they remained separate. An acquisition occurs when one company purchases another and becomes the new owner, while a merger combines two firms into a single new company. However, purchases are often called mergers when the CEOs agree it is in both companies' best interests. But if the deal is unfriendly, it will be called an acquisition.

Uploaded by

Ritudeb Chakraborty
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Two companies together are more valuable than two separate companies – that's the

reasoning behind Mergers & Acquisition. The terms merger and acquisition are used as
though they were synonymous yet they are not. Acquisition implies a purchase whereby
the buyer swallows another company and establishes himself as the new owner. A
merger on the other hand happens when two firms unite into a single company.
However, actual mergers don't take place as is always the case that the company that
buys another (which are supposedly equal in strength) will proclaim that the action is a
merger when in reality and technically an acquisition. A purchase deal will be also called
a merger when both CEOs mutually agree that merging is in the best interest of their
companies. But when the deal in unfriendly it is always regarded as an acquisition.

Mergers

Based on the relationship between the two companies that are merging, we can classify mergers
into:

Horizontal merger- When two companies merge that are in direct competition and share the
same product lines and market.

Vertical merger- A customer and company or a supplier and company. E.g., a leather supplier
and a shoemaker.

Conglomeration- Two companies that have no common business areas.


 
Based on how the merger is financed we can classify mergers into:

Purchase mergers- This kind of merger occurs when one company purchases another. The
purchase is made with cash or through the issue of some kind of debt instrument.

Consolidation mergers-When both the companies are bought and combined to form a brand new
company, the merger is known as consolidation merger.
Acquisitions

Acquisitions are slightly different from mergers in the sense that there is no exchange of stock or
consolidation as a new company. Acquisitions are often congenial and all parties feel satisfied with the
deal. Another type of acquisition is a reverse merger , it occurs when a private company that has strong
prospects and is eager to raise financing buys a publically-listed company, usually one with no business
and limited assets.
 
It must be understood that the main aim and purpose of all mergers and acquisition is to create and make
the value of the combined companies greater than the sum of the two parts.

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