- This page deals with the combination of two companies into one. For information about other uses of the word "merge", see
merge.
In business or economics a
merger is a combination of two companies into one larger company. Such
actions are commonly voluntary and involve stock swap or cash payment to the
target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A
merger can resemble a takeover but result in a new company name (often combining
the names of the original companies) and in new branding; in some cases, terming the
combination a "merger" rather than an acquisition is done purely for political or marketing reasons.
Classifications of mergers
- Horizontal mergers take place where the two
merging companies produce similar product in the same industry.
- Vertical mergers occur when two firms, each
working at different stages in the production of the same good, combine.
- Conglomerate mergers take place when the two firms operate in
different industries.
A unique type of merger called a reverse merger is used as a way of
going public without the expense and time required by an IPO.
Issues
The occurrence of a merger often raises concerns in anti-trust circles.
Devices such as the Herfindahl index can analyze the impact of a
merger on a market and what, if any, action could prevent it. Regulatory bodies such as the European Commission and the United States Department of Justice may investigate anti-trust cases for monopolies dangers, and have the power to block mergers.
The completion of a merger does not ensure the success of the resulting organization; indeed, many (in some industries, the
majority) mergers result in a net loss of value due to problems. Correcting problems caused by incompatibility—whether of
technology, equipment, or corporate culture— diverts
resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or
liabilities at one of the partners. Overlapping subsidiaries or redundant staff may be allowed to continue, creating
inefficiency, and conversely the new management may cut too many operations or personnel, losing expertise and disrupting
employee culture. These problems are similar to those encountered in takeovers. For
the merger to not be considered a failure, it must increase shareholder value faster than if the companies were separate, or
prevent the deterioration of shareholder value more then if the companies were separate.
Major mergers since 1990
Europe
- Vodafone; with Mannesmann (completed February 2000) ($130 billion) ([13] (http://www.telecomvisions.com/current/man.php))
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