Merger refers to the process whereby at least two companies combine to form one single company. 

  • Mergers help firms to consolidate market and to gain competitive edge. 
  • A financial tool used for enhancing long term profitability by expanding their operations. 
  • Merger occurs when there is mutual consent between merging firms. 
  • Merger or amalgamation may take two forms: 
    • Absorption – merging of two or more companies into an existing company. 
    • Consolidation – merging of two or more companies into a new company. 
  • In a merger there is complete amalgamation of the assets and liabilities as well as shareholders’ interests and businesses of the merging companies. 

Types of Mergers

  1. Horizontal
    • Merger between companies competing in the same line of business activities. 
    • Number of firms in an industry gets reduced – may lead to monopoly. 
    • Regulated by governments to control their negative effect on competition. 
    • Eg: Bank of Rajasthan with ICICI Bank
    • Eg: ACC cement with Damodar cement
  2. Vertical 
    • Merger between firms producing different goods or services for specific finished goods. 
    • Results in cost reduction (transportation etc)
    • Two types: 
      • Backward vertical merger – TATA tea with tea gardens in Assam. 
      • Forward vertical merger – oil companies buying up service stations.
  3. Concentric
    • Two firms merge to share some common expertise that may become mutually advantageous. (managerial, technology etc).
  4. Conglomerate
    • Merger between firms that are involved in totally unrelated business activities.  
    • Two types: 
      • Pure 
      • Mixed
    • Main reasons – synergy, increasing market share, cross selling, to diversify, to reduce risk exposure etc. 
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