Title Page

FM 4-6

Corporate
Mergers and
Consolidation
Group 4
Title Page Objectives

Objectives

Objectives
At the end of this lesson, the students are expected to:

1. Describe merger and consolidation;

2. Differentiate merger from consolidation;
3. Identify the types of mergers and consolidation;
4. Explain the guidelines of mergers and consolidation; and
5. Identify the advantages and disadvantages of merger and
consolidation.
 Title Page Objectives Definition

Describe merger and consolidation

Merger
A merger is a business deal where two
existing, independent companies combine to
form a new, singular legal entity. Mergers are
voluntary. Typically, both companies are of a
similar size and scope and both stand to gain
from the transaction.
 Title Page Objectives Definition

Describe merger and consolidation

Consolidation
Consolidation happens when two or more
companies merge to become one. Also
known as amalgamation, business
consolidation is most often associated with
M&A activity.

This generally happens when several similar,

smaller businesses combine to form a new,
larger legal entity. In most cases, the smaller
entities cease to exist after being swallowed
up by the acquirer.
 Title Page Objectives Definition Differences

Differentiate merger from consolidation

DIFFERENCES OF MERGER &

CONSOLIDATION
Business mergers and consolidations have several differences that can
help company decision-makers decide between merging or consolidating
with another company.
Title Page Objectives Definition Differences

Differentiate merger from consolidation

MERGER CONSOLIDATON

It happens to help companies

It happens to increase their
to streamline business
PURPOSE product's market value and
processes and reduce
eliminate competition.
operational expenses.

The resulting company may

The resulting company is an
RESULTING also be a continuation of the
entirely new entity. All previous
COMPANY dominant company after it
companies cease to exist.
absorbs the other.
Title Page Objectives Definition Differences

Differentiate merger from consolidation

Merger tend to occur when

Consolidation tend to occur
one firm is significantly larger
COMPANY SIZE when the two firms are of
than the other and the survivor
approximately equal size.
is usually the larger of the two.

This often results in team

Team members may remain at
members, supervisors and
each company's location, or
TEAM MEMBER managers from each previous
the new company may
STATUS company finding a position
combine certain roles to
within the consolidated
reduce operational costs.
company.
 Title Page Objectives Definition Differences Types

Identify the types of mergers and consolidation

TYPES OF MERGERS
AND CONSOLIDATION
1. Horizontal
Merger
- Companies operating in the same or similar industries and producing similar
goods or services combine forces. The goal is often to achieve economies of
scale, reduce competition, and increase market share.
 Title Page Objectives Definition Differences Types

Identify the types of mergers and consolidation

Consolidation
- New entity is often formed to combine the operations.

2. Vertical

Merger
- Companies in the same supply chain but at different stages of production. For
example, a merger between a manufacturer and a distributor or between a
supplier and a retailer. The aim is to improve efficiency and reduce costs by
integrating different stages of the production or distribution process.
 Title Page Objectives Definition Differences Types

Identify the types of mergers and consolidation

Consolidation
- Like a vertical merger, the goal is to achieve greater efficiency and
control over the supply chain.

3. Conglomerate

Merger
- Occur when companies from unrelated industries come together.

Consolidation
- Occurs when two or more conglomerate companies consolidate their
operations to create a larger and more diversified conglomerate entity.
 Title Page Objectives Definition Differences Types

Identify the types of mergers and consolidation

4. Market Extension Merger:

- Occurs when two companies selling the same products or services in different
geographic areas combine.

5. Product Extension Merger:

- Companies selling different but related products merge. This allows the
combined entity to offer a broader range of products to existing customers.

6. Synergistic Merger:
- Two companies merge because of believed product synergy.
 Title Page Objectives Definition Differences Types Guidelines

Explain the guidelines of mergers and consolidation

Mergers and Consolidation

Guidelines
CCP RULE NO. 2 : RULES ON MERGERS AND CONSOLIDATIONS
(1986)
Republic of the Philippines

The following rules governing mergers and consolidations (Secs. 76-80

CCP) are hereby promulgated:
 Title Page Objectives Definition Differences Types Guidelines

Explain the guidelines of mergers and consolidation

SECTION 3. Appraisal Rights of Dissenting Stockholder in

Mergers and
- A stockholder who voted against the plan of merger or consolidation has the right to
demand payment of the fair value of his shares in accordance with the provisions of
Section B2 of the Corporation Code of the Philippines.

SECTION 4. Approval of the Merger/Consolidation: When

hearing is
- The Securities and Exchange Commission shall approve the articles of
merger/consolidation and issue the corresponding certificate of Filing of Articles of
Merger/Consolidation if it is satisfied that the merger or consolidation of the corporations
concerned is not inconsistent with the provisions of the Corporation Code of the
Philippines and existing laws.
 Title Page Objectives Definition Differences Types Guidelines

Explain the guidelines of mergers and consolidation

However, if the Securities and Exchange Commission has reason to believe, upon proper
investigation, that the proposed merger/consolidation is contrary to or inconsistent with
the provisions of the Corporation Code of the Philippines and existing laws, it shall set a
hearing to give the corporations concerned and other parties affected the opportunity to
be heard. Written notice of the date, time and place of said hearing shall be sent to the
constituent corporations and other parties affected at least two (2) weeks before said
hearing.

If after the hearing, the Commission finds that the requirements of the Corporation Code of
the Philippines, its implementing rules and regulations and other pertinent laws have been
complied with, and that no valid reason(s) exists for the disapproval of the
merger/consolidation, the Commission shall issue the necessary certificate of
merger/consolidation, at which time the merger/consolidation shall be effective.
 Title Page Objectives Definition Differences Types Guidelines

Explain the guidelines of mergers and consolidation

The Commission shall inform the Bureau of Internal Revenue of the approval of the
merger/consolidation.

SECTION 5. Filing Fees

- An amount equal to 1/10 of one (1%) per centum of the equity of the absorbed
corporations which was used as basis of the merger or consolidation but not less than
P1,000.00 nor more than P100,000.00 shall be collected by the Commission as filing fees
for the articles of merger or consolidation. For non-stock corporations, a fee of P1,000.00
shall be collected for the articles of merger or consolidation.
 Title Page Objectives Definition Differences Types Guidelines

Explain the guidelines of mergers and consolidation

SECTION 6. Violation of these Rules

- Any violation of these rules shall be penalized by a fine of not less than One Thousand
(P1,000.00) Pesos nor more than Ten Thousand (P10,000.00) Pesos, and such other
sanctions as provided for under Section 144 of the Corporation Code of the Philippines.

SECTION 7. Effectivity
- These rules shall take effect fifteen (15) days after their publication in two (2) newspaper
of general circulations in the Philippines.
 Title Page Objectives Definition Differences Types Guidelines Pros and Cons

Identify the advantages and disadvantages of mergers and consolidtaion

Pros and Cons of Merger

and Consolidation
Pros of Merger
1. Lower costs:
A merger sometimes can lower the cost of raw materials.

2. Broader reach:
The new larger company might have a much broader reach.
 Title Page Objectives Definition Differences Types Guidelines Pros and Cons

Identify the advantages and disadvantages of mergers and consolidtaion

3. Diversified risk:
When two companies merge, so do their product lines and offerings. The new company often
has a more diverse set of revenue streams.

4. Shared resources:
When two companies merge, they can share resources and often reduce expenses.

5. Increased market share:

The merging of two companies can often lead to increased market share. This is because the new
company can grow and expand in new areas.

6. New products:
When two companies merge, they sometimes can add products that help fill in gaps in what they
offer consumers.
 Title Page Objectives Definition Differences Types Guidelines Pros and Cons

Identify the advantages and disadvantages of mergers and consolidtaion

Cons of Merger
1. Culture clash:
When two different companies come together, there is a clash of cultures. Separately, the two
companies might have very different philosophies in doing business and treating employees.

2. Lack of vision:
Without a vision for how the two companies come together, achieving theoretical benefits might prove
challenging.

3. Potential job loss:

Cost savings and the sharing of resources are positives, but eliminating duplicative positions is a
way companies achieve those benefits.
 Title Page Objectives Definition Differences Types Guidelines Pros and Cons

Identify the advantages and disadvantages of mergers and consolidtaion

4. New branding:
New branding can sometimes be negative, depending on the situation.

Pros of Consolidation
1. Economies of Scale:
The large organization enjoys economies of scale in buying and marketing.

2. Better management:
Since employees of different businesses are combined into one, there is greater depth of
managerial talent available.
 Title Page Objectives Definition Differences Types Guidelines Pros and Cons

Identify the advantages and disadvantages of mergers and consolidtaion

3. Stability:
When compared to other forms of combinations, complete consolidation has more stability and
enjoys longer life.

4. Simple structure:
The organization structure is simple. Therefore it is easy to manage and control.

5. Economy of management:
Since there is one single entity, the expense of managing is less when compared to a holding
company structure where a number of officials have to be employed.

6. Reduction in competition:
When competing businesses combine together, then competition is reduced. The amount spent
on advertisement and sales promotions can be reduced.
 Title Page Objectives Definition Differences Types Guidelines Pros and Cons

Identify the advantages and disadvantages of mergers and consolidtaion

7. Increased financial strength:

As the financial resources of the combined units are merged together, the combined unit has increased
financial resources.

8. Expansion and diversification

Increased financial strength and economies of scale achieved by a combined unit enable it to expand
the business.
 Title Page Objectives Definition Differences Types Guidelines Pros and Cons

Identify the advantages and disadvantages of mergers and consolidtaion

Cons of Consolidation
1. Difficult to form:
Consent of a large majority of shareholders of the constituent companies has to be obtained for forming
a complete consolidation.

2. Expensive to form:
Various legal formalities have to be observed and it is both time consuming and expensive to form.

3. Problem of over capitalization:

IWhen business units combine it might result in over capitalization. Shareholders would not get
an adequate return on their capital.
 Title Page Objectives Definition Differences Types Guidelines Pros and Cons

Identify the advantages and disadvantages of mergers and consolidtaion

4. Inefficiency
Consolidation may result in very large units. If proper management processes and systems are not in
existence, it may lead to inefficiency and losses.

5. Lack of flexibility:
A large organization has very less dynamism and ability to adapt to changing business environment.
 Pros and
Title Page Objectives Definition Differences Types Guidelines Process End
Cons

Thank you for listening!

THANK
THANK YOU!
YOU!
Prepared by:
Cortez, Joan B.
Jimenez, Krisha Mae S.
Naling, Dorothy Kate V.
Opras, Crishel Mae B.
Paniza, Liez N.
Vanguardia, Margie A.
Quiz

Corporate mergers and consolidation quiz

Quiz Time!
Good Luck!
 Quiz Test 1

True or False

Test 1: True or False

Direction: Read the following statement carefully then write "TRUE" if
the answer is correct and "FALSE" if otherwise. Please avoid erasure.

1. A merger is a business deal where two existing, independent companies

combine to form a new, singular legal entity.

2. A consolidation is a combination of more than one business entity;

however, an entirely new entity is created.
 Quiz Test 1

True or False

3. The purpose of mergers is to increase their product's market value and

eliminate competition.

4. Consolidation tend to occur when the two firms are of approximately

equal size.

5. In consolidation, team members may remain at each company's location,

or the new company may combine certain roles to reduce operational costs.
 Quiz Test 1 Test 2

Multiple Choice

Test 2: Multiple Choice

Direction: Choose the letter corresponding to the correct answer for
each of the statement provided below.
1. It is a type of mergers or consolidation where a companies operates in the
same industries that produces similar goods and new entity is often formed.

A. Conglomerate Merger
B. Conglomerate Consolidation
C. Horizontal Merger
D. Horizontal Consolidation
 Quiz Test 1 Test 2

Multiple Choice

2. It occurs when two companies selling the same products or services in

different geographic areas combine.

A. Horizontal Merger
B. Market Extension Merger
C. Product Extension Merger
D. Synergistic Merger
 Quiz Test 1 Test 2

Multiple Choice

3. These guidelines shall take effect fifteen (15) days after their publication
in two (2) newspaper of general circulations in the Philippines.

A. Section 7 (effectivity)
B. Section 4 (Approval of the Merger/Consolidation: When hearing is
necessary)
C. Section 6 (Violation of these Rules)
D. Section 5 (Filing Fees)
 Quiz Test 1 Test 2

Multiple Choice

4. In these guidelines, an amount equal to 1/10 of one (1%) per centum of the
equity of the absorbed corporations which was used as basis of the merger
or consolidation but not less than P1,000.00 nor more than P100,000.00
shall be collected by the Commission as filing fees for the articles of merger
or consolidation. For non-stock corporations, a fee of P1,000.00 shall be
collected for the articles of merger or consolidation. What part of the
section does it belong?

A. Section 7 (effectivity)
B. Section 5 (Filing Fees)
C. Section 4 (Approval of the Merger/Consolidation: When hearing is
necessary)
D. Section 6 (Violation of these Rules)
 Quiz Test 1 Test 2

Multiple Choice

5. Any violation of these rules shall be penalized by a fine of not less than
One Thousand (P1,000.00) Pesos nor more than Ten Thousand (P10,000.00)
Pesos, and such other sanctions as provided for under Section 144 of the
Corporation Code of the Philippines. What part of the guidelines does it
belong?

A. SECTION 3 (Appraisal Rights of Dissenting Stockholder in Mergers and

Consolidations)
B. SECTION 4 (Approval of the Merger/Consolidation: When hearing is
necessary)
C. SECTION 6 (Violation of these Rules)
D. SECTION 7 (Effectivity)
 Quiz Test 1 Test 2 Test 3

Enumeration

Test 3: Enumeration
Direction: Give the following answers needed.

1- 3. Give at least 3 pros of merger.

4-5. Give at least 2 cons of consolidation.