What Does Merger Mean?

The combining of two or more companies, generally by offering the stockholders of one company
securities in the acquiring company in exchange for the surrender of their stock
Definition
The combining of two or more entities into one, through a purchase acquisition or a pooling of
interests. Differs from a consolidation in that no new entity is created from a merger

Definition

Voluntary amalgamation of two firms on roughly equal terms into one new legal entity. Mergers
are effected by exchange of the pre-merger stock (shares) for the stock of the new firm. Owners
of each pre-merger firm continue as owners, and the resources of the merging entities are pooled
for the benefit of the new entity. If the merged entities were competitors, the merger is called
horizontal integration, if they were supplier or customer of one another, it is called vertical
integration.

Definition of acquisition
Acquisition is the process through which one company takes over the controlling interest of
another company. Acquisition includes obtaining supplies or services by contract or purchase
order with appropriated or non-appropriated funds, for the use of Federal agencies through
purchase or lease.

Definition
Acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile
or friendly. also called takeover.

What Does Acquisition Mean?

A corporate action in which a company buys most, if not all, of the target company's ownership
stakes in order to assume control of the target firm. Acquisitions are often made as part of a
company's growth strategy whereby it is more beneficial to take over an existing firm's operations
and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring
company's stock or a combination of both.
Investopedia Says
Investopedia explains Acquisition
Acquisitions can be either friendly or hostile. Friendly acquisitions occur when the target firm
expresses its agreement to be acquired, whereas hostile acquisitions don't have the same
agreement from the target firm and the acquiring firm needs to actively purchase large stakes of
the target company in order to have a majority stake.

A merger or acquisition is a combination of two companies where one corporation is completely

absorbed by another corporation. The less important company loses its identity and becomes part
of the more important corporation, which retains its identity. A merger extinguishes the merged
corporation, and the surviving corporation assumes all the rights, privileges, and liabilities of the
merged corporation. A merger is not the same as a consolidation, in which two corporations lose
their separate identities and unite to form a completely new corporation.
Federal and state laws regulate mergers and acquisitions. Regulation is based on the concern
that mergers inevitably eliminate competition between the merging firms. This concern is most
acute where the participants are direct rivals, because courts often presume that such
arrangements are more prone to restrict output and to increase prices. The fear that mergers and
acquisitions reduce competition has meant that the government carefully scrutinizes proposed
mergers. On the other hand, since the 1980s, the federal government has become less
aggressive in seeking the prevention of mergers.

Despite concerns about a lessening of competition, U.S. law has left firms relatively free to buy or
sell entire companies or specific parts of a company. Mergers and acquisitions often result in a
number of social benefits. Mergers can bring better management or technical skill to bear on
underused assets. They also can produce economies of scale and scope that reduce costs,
improve quality, and increase output. The possibility of a takeover can discourage company
managers from behaving in ways that fail to maximize profits. A merger can enable a business
owner to sell the firm to someone who is already familiar with the industry and who would be in a
better position to pay the highest price. The prospect of a lucrative sale induces entrepreneurs to
form new firms. Finally, many mergers pose few risks to competition.

Antitrust merger law seeks to prohibit transactions whose probable anticompetitive consequences
outweigh their likely benefits. The critical time for review usually is when the merger is first
proposed. This requires enforcement agencies and courts to forecast market trends and future
effects. Merger cases examine past events or periods to understand each merging party's
position in its market and to predict the merger's competitive impact.
Types of Mergers

Mergers appear in three forms, based on the competitive relationships between the merging
parties. In a horizontal merger, one firm acquires another firm that produces and sells an identical
or similar product in the same geographic area and thereby eliminates competition between the
two firms. In a Vertical Merger, one firm acquires either a customer or a supplier. Conglomerate
mergers encompass all other acquisitions, including pure conglomerate transactions where the
merging parties have no evident relationship (e.g., when a shoe producer buys an appliance
manufacturer), geographic extension mergers, where the buyer makes the same product as the
target firm but does so in a different geographic market (e.g., when a baker in Chicago buys a
bakery in Miami), and product-extension mergers, where a firm that produces one product buys a
firm that makes a different product that requires the application of similar manufacturing or
marketing techniques (e.g., when a producer of household detergents buys a producer of liquid
bleach).
Corporate Merger Procedures

State statutes establish procedures to accomplish corporate mergers. Generally, the board of
directors for each corporation must initially pass a resolution adopting a plan of merger that
specifies the names of the corporations that are involved, the name of the proposed merged
company, the manner of converting shares of both corporations, and any other legal provision to
which the corporations agree. Each corporation notifies all of its shareholders that a meeting will
be held to approve the merger. If the proper number of shareholders approves the plan, the
directors sign the papers and file them with the state. The Secretary of State issues a certificate
of merger to authorize the new corporation.

Some statutes permit the directors to abandon the plan at any point up to the filing of the final
papers. States with the most liberal corporation laws permit a surviving corporation to absorb
another company by merger without submitting the plan to its shareholders for approval unless
otherwise required in its certificate of incorporation.

Statutes often provide that corporations that are formed in two different states must follow the
rules in their respective states for a merger to be effective. Some corporation statutes require the
surviving corporation to purchase the shares of stockholders who voted against the merger.
Competitive Concerns

Horizontal, vertical, and conglomerate mergers each raise distinctive competitive concerns.

Horizontal Mergers Horizontal mergers raise three basic competitive problems. The first is the
elimination of competition between the merging firms, which, depending on their size, could be
significant. The second is that the unification of the merging firms' operations might create
substantial market power and might enable the merged entity to raise prices by reducing output
unilaterally. The third problem is that, by increasing concentration in the relevant market, the
transaction might strengthen the ability of the market's remaining participants to coordinate their
pricing and output decisions. The fear is not that the entities will engage in secret collaboration
but that the reduction in the number of industry members will enhance tacit coordination of
behavior.

Vertical Mergers Vertical mergers take two basic forms: forward Integration, by which a firm buys
a customer, and backward integration, by which a firm acquires a supplier. Replacing market
exchanges with internal transfers can offer at least two major benefits. First, the vertical merger
internalizes all transactions between a manufacturer and its supplier or dealer, thus converting a
potentially adversarial relationship into something more like a partnership. Second, internalization
can give management more effective ways to monitor and improve performance.

Vertical integration by merger does not reduce the total number of economic entities operating at
one level of the market, but it might change patterns of industry behavior. Whether a forward or
backward integration, the newly acquired firm may decide to deal only with the acquiring firm,
thereby altering competition among the acquiring firm's suppliers, customers, or competitors.
Suppliers may lose a market for their goods; retail outlets may be deprived of supplies; or
competitors may find that both supplies and outlets are blocked. These possibilities raise the
concern that vertical integration will foreclose competitors by limiting their access to sources of
supply or to customers. Vertical mergers also may be anticompetitive because their entrenched
market power may impede new businesses from entering the market.

Conglomerate Mergers Conglomerate transactions take many forms, ranging from short-term
joint ventures to complete mergers. Whether a conglomerate merger is pure, geographical, or a
product-line extension, it involves firms that operate in separate markets. Therefore, a
conglomerate transaction ordinarily has no direct effect on competition. There is no reduction or
other change in the number of firms in either the acquiring or acquired firm's market.

Conglomerate mergers can supply a market or "demand" for firms, thus giving entrepreneurs
liquidity at an open market price and with a key inducement to form new enterprises. The threat of
takeover might force existing managers to increase efficiency in competitive markets.
Conglomerate mergers also provide opportunities for firms to reduce capital costs and overhead
and to achieve other efficiencies.

Conglomerate mergers, however, may lessen future competition by eliminating the possibility that
the acquiring firm would have entered the acquired firm's market independently. A conglomerate
merger also may convert a large firm into a dominant one with a decisive competitive advantage,
or otherwise make it difficult for other companies to enter the market. This type of merger also
may reduce the number of smaller firms and may increase the merged firm's political power,
thereby impairing the social and political goals of retaining independent decision-making centers,
guaranteeing small business opportunities, and preserving democratic processes.