A merger is a business transaction in which two or more companies combine to form a new, single legal entity. The resulting company may operate under a new name and is usually subject to antitrust laws. Companies often merge to gain market share, reduce operational costs, expand into new territories, unite common products, improve operations, and drive revenue.
Mergers are also a way for businesses to achieve economies of scale, which allows them to gain cost reduction benefits from increased production and buying in bulk. However, a successful merger requires careful planning and execution to make sure the benefits outweigh any risks associated with the deal.
The process of a merger can be accelerated through a statutory exchange, in which the acquirer obtains all shares or ownership interests of the acquired firm. This approach eliminates the need to negotiate with shareholders and can save time and money. It is a common method used in the pharmaceutical industry.
There are many different types of mergers. Some are vertical, in which firms operate in the same market but in different industries, while others are horizontal. A mixed conglomerate occurs when a firm in one market acquires a firm that operates in a completely different sphere. For example, The Walt Disney Company merged with ABC in 1995.
Another type of merger is a cogeneric one, which occurs when two companies in the same industry offer the same product. For example, ketchup manufacturers Heinz and Kraft merged in 2015. A cogeneric merger can help firms extend their existing customer base by offering them additional products.
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