Merger refers to the business arrangement between two or more companies or body corporates form a single/one company or body corporate for the benefit of both companies. There are various benefits companies enter into the transaction of merger which is as follows:
- It enables enterprises to achieve economies of scale
- Reduction of Operational cost is a very big advantage for entering into the transaction of merger
- Improve the overall performance of the companies in a single entity.
- For diversification and expansion of business etc
The merger is the legal consolidation of two entities into one entity which can be merged either by way of
- Amalgamation
- Absorption
- Formation of a new company (Demerger)
- Amalgamation means the two or more-company come together and join forces to form a new separate legal entity the most famous example of amalgamation of Maruti Suzuki (India) Limited in which Maruti Motors was Indian based company and Suzuki was a Japanese Company.
- Absorption means one entity takes over the business of another existing entity and absorbs the other entity into itself the common example of absorption of WhatsApp by Facebook.
- Formation of a new company (Demerger) is the arrangement where some part of one company is transferred to another company that operates separately from the original company. The most recent example of this type of merger is Jio which is formed as part of Reliance Industries but operates separately.
Now we will discuss the types of mergers from which companies enter the transaction of merger
- Horizontal Merger means two or more companies that be long to the same product and same market to form a single entity the latest example of a Horizontal Merger is the merger of Vodafone-Idea merged and formed VI
- Vertical Merger means two or more companies that belong to a different stage of the production process
- Conglomerate Merger means two or more companies combine forces which belongs to different market and different product example of Conglomerate Merger L&T cement acquire an IT Company and forms L&T Infotech.
- Congeneric Merger means merger of two companies which belongs to same customer group or technology
The merger is the inorganic strategy to grow company business by which even a sick or loss-making company can merge with the profit-making company and earn profit for their stakeholders.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.
Posted by:
CS Neetu Saini
AKGVG & Associates