A

merger occurs when two companies combine to form a single company. A merger is very similar to an acquisition or takeover, except that in the case of a merger existing stockholders of both companies involved retain a shared interest in the new corporation. By contrast, in an acquisition one company purchases a bulk of a second company's stock, creating an uneven balance of ownership in the new combined company.

 By

purchase of Assets By purchase of Common Shares By exchange of Share of Assets Exchange of Shares for Shares

Horizontal

Merger

It is a merger that results in the consolidation of firms that are direct rivalsthat is, sell substitutable products within overlapping geographic markets. This form of merger results in the expansion of a firms operations in a given product line and at the same time eliminates competitors. Example: Boeing McDonnell Douglas

Vertical

Merger

When two firms working in different stages of production join together, it is called vertical merger. A vertical merger is one in which the buyer expands backwards and merges with the firm supplying raw materials or expands forward in the direction of the ultimate consumer. The economic benefits of this type of merger stem from the firms increased control over the acquisition of raw materials or the distribution of finished goods. Examples: Time Warner - TBS

Conglomerate

Merger

A Conglomerate merger involves two firms in totally unrelated activities. A Conglomerate is a firm that has external growth through a number of mergers of companies whose business are not related either horizontally or vertically. It may have operations in manufacturing, electronics, banking and other unrelated businesses. This form of business results in the expansion of a firms operations in different unrelated lines of business with an increased sense of operating synergies. Example: PepsiCo- Pizza Hut

 Cross-Border Mergers
These are mergers which takes place between firms in two different countries. It can be in the same business or unrelated business. Cross border mergers help in increasing foreign exchange to the countries to which the merging firms belong. Example: Bharthi-AXA ING-vysya

 The

primary motive of merger is to create synergy. The other motives are as follows:
Gain market share Economies of scale Enter new market Acquire technology Utilization of surplus, funds & managerial effectiveness Strategic objectives.

 Differential

efficiency theory: Inefficient management theory Synergy Diversification Market share Strategic realignment Hubris hypothesis {winners curse} Agency problem Information and signaling Tax considerations

Internal Factors
1. 2.

3.
4.

5.
6.

Funds/Capital Working capital Time management / Resource management Managerial efficiency. Large scale Increase of turnover and revenue

External Factors
1. 2. 3. 4. 5.

Competition Monopolistic To reach global markets having large scale business Technology factor Marketing strategy for advertisements and promotions

6. Synergy. Example: company As share value is 200 lakhs and company Bs share value is 100 Lakhs. When company A & Company B merged, the share value of the newly formed company AB is 305 lakhs. The increase of 5 lakhs in the total share value is Synergy.