A merger is a combination (other terms used: amalgamation, consolidation, or integration) of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash, or both the organizations are dissolved, and the assets and liabilities are combined and new stock is issued.
Concept and Types of
Mergers
A merger is a combination (other terms used:
amalgamation, consolidation, or integration) of two or more organizations in
which one acquires the assets and liabilities of the other in exchange for
shares or cash, or both the organizations are dissolved, and the assets and
liabilities are combined and new stock is issued. In mergers, all the combining
firms relinquish their independence and cooperate, resulting in common
cooperation.
For the organization, which acquires another, it is
an acquisition. For the organization, which is acquired, it is a merger. If
both organizations dissolve their identity to create a new organization, it is
consolidation More time is taken for merger than acquisition. Mergers are three
types: horizontal mergers, vertical mergers and concentric mergers.
Horizontal
mergers take place when there is a combination of two or more organizations in
the same business, or of organizations engaged in certain aspects of the
production or marketing process.
For
instance a company making footwear combines with another retailer in the same
business.
Vertical
mergers take place when there is a combination of two or more organizations not
necessarily in the same business, which complement either in terms of supply of
materials (inputs ) or marketing of goods and services (outputs).
For
instance a footwear company combines with a leather tannery or with a chain of
she retail stores.
Concentric
mergers take place when there is a combination of two or more organizations
related to each other either in terms of customer functions, customer groups,
or the alternative technologies used.
A
footwear company combining with a hosiery firm making socks or another
specialty footwear company, or with a leather goods company making purses,
handbags, and so on.
Conglomerate
mergers take place when there is a combination of two more organizations
unrelated to each other, either in terms of customer functions, customer
groups, or alternative technologies used. A foot wear company combining with a
pharmaceuticals firm.
Mergers carried out in reverse are known as
demergers or spin-offs. Demerger involves spinning off an unrelated
business/division in a diversified company into a stand-alone company along
with a free distribution of its shares to the existing shareholders of the
original company.
There are a few cases of demergers in India namely
the demerger of Hoechst Schering Agrevo Ltd. From Hoeschst India Ltd, Ciba
Specialty from Hindustan Ciba Geigy Ltd., from Sandoz renamed as Chariant
India, and Aptech from Apple Industries Ltd.
Tags : Strategic Management - Strategy Formulation
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