Mergers
Merger happens when two companies, mostly of the same size, agree to go forward as a single new company in the best interest of both. The shareholders of the involved companies often remain as joint proprietors. Both company's stocks are surrendered and a new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. A merger can bear a resemblance to takeover, but results in a new company name and a new branding.
There are different mergers based business structures. Here are a few types:
- Horizontal merger: This happens when two or more companies who are in direct competition and share the same product lines and markets merge.
- Vertical merger: This happens between a customer and company or a supplier and company. For example, a laptop company merge with the processor company.
- Market-extension merger: This happens between companies that sell the same products in different markets.
- Product-extension merger: This happens between companies selling different but related products in the same market.
- Conglomeration: This happens between companies that have no common business areas.
Finance based mergers
There are two types of mergers based on the financing. Each has certain implications for the investors:
- Purchase mergers: This occurs when one company takes on another. The purchase is made with cash or through the issue of some kind of debt instrument.
- Consolidation mergers: This occurs when two or more companies join to become a completely new company.