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Statutory Merger: A statutory merger is one in which all the assets and liabilities of the smaller
company is acquired by the bigger (acquiring) company. As a result, the smaller target company
loses its existence as a separate entity.
Company A + Company B = Company A
Subsidiary Merger: A subsidiary merger is one in which the target company becomes a
subsidiary of the bigger acquiring company. This happens because the target company may have a
known brand or a strong image which would make sense for the acquiring company to retain.
Company A + Company B = (Company A + Company B)
Consolidation: A consolidation merger is one in which both the companies lose their identity as
separate entities and become a part of a bigger new company. This is generally the case with both
the companies being of the same size.
Company A + Company B = Company C
Conglomerate Merger: A merger between companies that operate in completely different and
unrelated industries. A pure conglomerate merger is between companies with totally nothing in
common. A mixed conglomerate merger is between companies looking for market or product
extensions.
o Market Extension Mergers: A merger between companies that have same products to offer but
the markets are different. The reason behind such mergers is access to bigger markets and an
increase in client base.
o Product Extension Mergers: A merger between companies that have different but related
products but the markets are same. Such mergers allow the companies to bundle their product
offerings and approach more consumers.
o
Besides the above classifications, there are other characteristics of the deals also, that may further define the
types of mergers:
Complementary or Supplementary Merger: A complementary merger aims at compensating for
some limitation of the acquiring company. The target company may be an attempt to strengthen a
process or enter a new market. A supplementary merger is one in which the target company further
strengthens the acquiring company. The target may be similar to the acquiring company in this
case.
o Hostile or Friendly Merger: A merger can be hostile or friendly depending on the approval of its
directors. If the board of directors and the managers of the company are against the merger, it is a
hostile merger. If the merger is approved by them, it is a friendly merger.
o Arms Length Merger: This type of a merger is a merger that is approved both by the
disinterested directors and the disinterested stockholders.
o Strategic Merger: A merger of a target company with an aim of strategic holding over a longer
term. An acquirer may pay a premium to target in this case.
o
Conclusion:
A business combination gets complex not only with the legal issues but also with the type of a merger. A
merger can vary according to the way companies come together or their economic functions. It is important
to understand the type of merger to appreciate the intricacies involved.