What is merger

 Merger is the combination of two companies to form

one new company
 It involves transfer of ownership
 Both companies surrender their stock and issue new
stock as a new company
Types
 1. Horizontal mergers: It refers to two firms
operating in same industry or producing ideal
products combining together.
 For e.g., in the banking industry in India, Bank of
Madura by ICICI Bank
2. Vertical merger:
 A vertical merger can happen in two ways. One is
when a firm acquires another firm which produces raw
materials used by it.

 For e.g., a tyre manufacturer acquires a rubber

manufacturer, a car manufacturer acquires a steel
company, a textile company acquires a cotton yarn
manufacturer etc.
3. Conglomerate merger:
 It refers to the combination of two firms operating in
industries unrelated to each other.

 For e.g., a watch manufacturer acquiring a cement

manufacturer, a steel manufacturer acquiring a
software company etc. The main objective of a
conglomerate merger is to achieve i big size.
4. Concentric merger:
 It refers to combination of two or more firms which are
related to each other in terms of customer groups,
functions or technology.

 For eg., combination of a computer system

manufacturer with a UPS manufacturer.
5.Reverse merger
 A reverse merger is a merger in which a private
company becomes a public company by acquiring it.
 Reverse merger saves a private company from the
complicated process and expensive compliance of
becoming a public company
Reverse merger pros and cons
Advantages
 The private company
becomes a public company at
a lesser cost and gets listed on
the exchange without IPO
 Reverse merger helps in
saving of taxes of private
companies
Disadvantages
 Lawsuits for various reasons
are very common during the
reverse merger
 Reverse merger leads to
reverse stock splits. This
further leads to a reduction in
the number of shares held by
the shareholders
Difference between merger and
acquisition
Merger Acquisition
 Merging of two organisation
in to one
Cash vs equity
 In a cash merger, the acquirer uses cash to
buy a target company.
 Instead of exchanging shares of stock,
however, the buyer uses cash that is
available on a balance sheet or turns to the
debt capital markets for loans.
Stock Deal

 A publicly traded company may decide to

make an acquisition using its own equity.
The precise terms on stock deals vary but
can be performed on a one-to-one basis.
With this ratio, the buying company
exchanges one of its own shares of stock for
each one of the target company's shares.
Cont…
 The two stocks continue to trade until the merger is
finally approved by regulators and shareholders. At
this time, the target company's stock ceases to trade.
Investors in the target company may exchange each
share for one share of the surviving company's stock.