A merger occurs when two companies combine to form a single company.

A merger is very similar to an acquisition or takeover, except that in the case of a merger existing stockholders of both companies involved retain a shared interest in the new corporation. By contrast, in an acquisition one company purchases a bulk of a second company's stock, creating an uneven balance of ownership in the new combined company. The entire merger process is usually kept secret from the general public, and often from the majority of the employees at the involved companies. Since the majority of merger attempts do not succeed, and most are kept secret, it is difficult to estimate how many potential mergers occur in a given year. It is likely that the number is very high, however, given the amount of successful mergers and the desirability of mergers for many companies.

What is a Vertical Merger?

Vertical mergers are company mergers that involve the union of a customer with a vendor. Generally, the two companies involved in the merger will produce different but complimentary products. The vertical merger may take place as a means of combining assets to capture a sector of the market that neither company could manage on their own. In most cases, the vertical merger is a union that takes place voluntarily. Both parties determine that joining forces will strengthen the current position of the two businesses, and also lay the foundation for expanding into other areas as well. For example, a company that produces bearings for factory machinery may choose to merge with a company that manufactures gears for the same type of machinery. Together, they continue to provide products to their existing clientele. At the same time, the newly merged entity will create product offerings that will expand the usage of current clients and also allow the new company to capture additional customers. Horizontal Merger on wiseGEEK:

While technically more of an acquisition, it is not unusual for this type of strategy to be identified as a horizontal merger, if for no other reason than to generate positive public relations. A horizontal merger can provide benefits for consumers, as well as increase the potential for some liabilities. Horizontal mergers are types of mergers that involve companies in direct competition with one another. Often horizontal mergers are considered hostile, which means a larger company "takes over" a smaller one in more of an acquisition than a merger. Conglomerate mergers generally involve the union of two companies that have no type of common interest, are not in competition with any of the same competitors, and do not make use of the same suppliers or vendors. Essentially, the conglomerate merger usually brings together two companies with no connections whatsoever under one corporate umbrella. In the Daimler Chrysler case, there was synergy in market share, financial obligations, and operating costs that made the resulting company better than the two companies had been separately. Conglomerate mergers are types of mergers that are in different market businesses. There is also the option of holding the shares for a time, then creating some type of public offering as a means of generated revenue for the parent company. The mechanics of a cash merger are somewhat different from other merger strategies. In a more common scenario, the acquiring company works with the targeted company to acquire controlling interest by using its own stock to buy shares of that target. Topics in these training courses often include how to form joint alliances, strategies for acquisitions and mergers, and cost control. Board members and upper level managers are often the targeted audience of this kind of training. In some cases, acquiring a controlling amount of stock may be the preferred means of managing this type of combination. One of the more common approaches to a business combination is the business merger. With this model, two businesses choose to combine their assets in order to form a

Conglomerate Merger on wiseGEEK:

Merger Strategy on wiseGEEK:

Business Mergers on wiseGEEK:

new company that is stronger and more capable of competition in the marketplace than either business could accomplish on its own.

Also known as a business merger, a corporation merger is the decision of two incorporated entities to reorganize their two separate organizations into a single entity.

merger

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
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.

Benefits of Mergers:
1. Economies of scale. This occurs when a larger firm with increased output can reduce average costs. Different economies of scale include: i) technical economies if the firm has significant fixed costs then the new larger firm would have lower average costs ii) bulk buying discount for buying large quantities of raw materials iii) financial better rate of interest for large company iv) Organisational one head office rather than two is more efficient Note a vertical merger would have less potential economies of scale than a horizontal merger e.g. a vertical merger could not benefit form technical economies of scale 2. International Competition. Mergers can help firms deal with the threat of multinationals and compete on an international scale 3. Mergers may allow greater investment in R&D This is because the new firm will have more profit. This can lead to a better quality of goods for consumers

4. Greater Efficiency. Redundancies can be merited if they can be employed more efficient

Benifits
Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations. Mergers occur when the merging companies have their mutual consent as different from acquisitions, which can take the form of a hostile takeover.

The business laws in US vary across states and hence the companies have limited options to protect themselves from hostile takeovers. One way a company can protect itself from hostile takeovers is by planning shareholders rights, which is alternatively known as - poison pill. If we trace back to history, it is observed that very few mergers have actually added to the share value of the acquiring company. Corporate mergers may promote monopolistic practices by reducing costs, taxes etc.

Such activities may go against public welfare. Hence mergers are regulated d supervised by the government, for instance, in US any merger required\s the prior approval of the Federal Trade Commission and the Department of Justice. In US regulation son mergers began with the Sherman Act in 1890. Mergers may be horizontal, vertical, conglomerate or congeneric, depending or the nature of the merging companies.

MERGER BENEFITS COMPANIES JUN 1, 1999 12:00 PM, STEVE BROWN

For two of the country's most successful and best known real estate companies, the decision to merge operations might have surprised outsiders. Dallas-based Trammell Crow Co. (TCC) and Faison & Associates Inc. of Charlotte, N.C., were both fast-growing, multi-market real estate firms when they decided to team up last summer.

In June, TCC paid $39.1 million to buy 32-year-old Faison's real estate development, management and leasing operations. By joining forces, the two real estate service companies hoped to dramatically expand their operations and become more competitive nationwide. So far, the game plan is paying off. "By making the kind of investments we have made in this business and acquiring a brand like Faison, we have attracted a lot of attention," says TCC president George Lippe. "As a result, we see a lot more national clients calling us for business and a lot more top-notch real estate people wanting to join our operation." Faison president and CEO Philip W. Norwood, who was previously a TCC officer, rejoined the company as a vice chairman. And company founder Henry J. Faison became a director and executive vice president of TCC. Faison is also president of a new shopping mall subsidiary, Trammell Crow Faison Regional Mall Services (TCFRMS). A step ahead The merger made TCC the country's largest non-REIT operator of retail properties, with close to 60 million sq. ft. of shopping center space. The deal also took the company a long way toward its goal of being a true nationwide retail real estate service company. "1998 was a year of growth for us as a company where we accomplished a lot of our longterm objectives," says William Rothacker, president of Trammell Crow Retail Services (TCRS). "The addition of Henry Faison and (former Faison partner) Jimmy Culpepper and their team gave a big boost to our credibility in the retail marketplace. It showed retailers all over the country the kind of commitment we were willing to make to this business." During the past three years, TCC has focused on creating the same kind of multi-level, nationwide service operation in the retail sector that it has long utilized in the office and industrial property markets. With 150 offices in the United States and Canada, TCC manages more than 200 million sq. ft. of real estate in almost 16,000 properties, using existing operations as well as new talent to set up a nationwide retail platform. The 50-year-old real estate giant has been growing its retail tenant business, representing some of the country's largest merchants including PetsMart, OfficeMax, Blockbuster, Schlotzky's and Pearle Vision. "By integrating its development, management and leasing operations, TCC's retail division is offering retailers almost every kind of property service, from construction management of new locations to dispositions of surplus stores. "For the retailer, our goal is to do everything," Rothacker says. "We can find the right location for them. We can build it for them, and we can lease it to them." And TCC last year set up a National Retail Financial Services division to invest in net-leased, single-tenant retail buildings. "We can buy the assets they own and in effect take them off their balance sheets," he says.

Growth period In 1997, TCC made its first big investment in the shopping center industry with its $28 million purchase of Cleveland-based Doppelt & Co., one of the country's bestknown retail tenant rep firms. Last year's Faison purchase more than doubled TCC's retail management portfolio. "There still aren't that many people - other than the big REITs - involved in the shopping center business in multiple markets," Rothacker says. "It's still basically a local business." The acquisition of Faison expanded TCC's retail operations into new cities in the East and brought the company into the regional mall business for the first time. "In regional malls, we had a void and needed their general knowledge and development capabilities," Rothacker says. "They had a skill set that added to ours, and it's turned out to be a great marriage." In the merger, Faison brought a management portfolio of 16 malls and more than 200 strip centers in markets stretching from Washington, D.C., to Georgia. Before the combination, TCC had strong retail operations in the Southwest and Colorado, and in East and West Coast markets such as Seattle, Portland, Boston and Miami. "We are now looking for new markets to expand our retail development program into," says Culpepper, who is now TCC's president of Eastern Retail Development. "Now that we have this national presence, we can look for opportunities on a nationwide basis." That's what Faison was after in its merger with TCC. Faison was already the biggest real estate player in the Southeast, doing office, industrial and retail development, management, and leasing. But increasingly its clients wanted to deal with a larger, more geographically diversified firm. "We really needed to align ourselves with a large, full-service real estate company," Culpepper recalls. "We wanted to join with a company that was culturally compatible with us and valued our main strengths. The idea was to be successful at integrating the people, the geographic locations and best practices of both organizations." The transition has gone smoothly, Culpepper reports, and at the same time the combined company has continued to bring in new business. TCFRMS in November took over the management of Volusia Mall in Daytona Beach, Fla. The 1.07 million sq. ft. center is anchored by Dillard's, Burdines, Gayfers, JCPenney and Sears and is located near the Daytona International Speedway. In December, TCC began managing the Honey Creek Mall in Terre Haute, Ind. The 700,000 sq. ft. shopping center is anchored by JCPenney, Sears, L.S. Ayres and Elder-Beerman stores. Both the Florida and Indiana shopping centers were acquired by Faison Enterprises, a real estate investment partnership set up by Henry Faison. As part of the sale, Faison Enterprises has also funded a $300 million TCC retail development program over the next two years. "Our forte has been development and redevelopment of shopping centers since the company was founded in 1966," Culpepper says. "TCC's offices can tee up retail

development opportunities for us in new and existing markets all over the country. It's a real plus." In 1998, TCC and Faison combined developed about 3.9 million sq. ft. of new retail projects. "We see increased development activity in 1999," Culpepper says. A greater reach One new area that TCRS is looking at this year is increased big-city infill and redevelopment. "It's unusual to have a company our size focusing on urban areas around the country," Rothacker says. "But many retailers need to go into major metropolitan areas with a lot of urban locations. It's a completely different animal from finding suburban locations. And a big problem for retailers is that each urban area has its own set of players." Responding to client needs has driven TCC's recent expansions including the Faison purchase, Rothacker says. "The retailers, who want a competitive advantage over other companies, love the fact that we have further penetration and are a service provider in more markets," he says. "Because of the strength of TCC, we can add ability in any area our clients need." The Faison merger also was seen as a big plus for institutional and private investors who participate in TCC developments. "Our investor clients love it, because it gives them a source of deal flow," he says. "We can provide development services, and they can coinvest with us." The Faison acquisition was TCC's fifth and largest real estate service company acquisition since the company went public in 1997. Also last year, TCC paid $32.8 million to purchase Fallon Hines & O'Conner Inc., a Boston real estate brokerage firm. The company has also bought real estate firms in California, Washingtonand Ohio. "In calendar year 1998 we closed five purchases," Lippe says. "We will be a little more selective this year. A number of real estate companies were on a rapid consolidation pace last year. "As a group, we are doing some digesting right now," he says. "We have to deliver what we promised with these acquisitions." Lippe says the Faison and Doppelt purchases are already paying off for TCRS. "When I do the simple math on how much we've invested in our retail services business, it adds up to over $60 million," he says. "Our two fastest growing businesses are now retail services and infrastructure management." The shopping center industry has noticed TCC's investment, and the company is adding local retail services talent in many markets. "I underestimated the magnet this would create for people to join us," Lippe says. "We've hired a number of top people already in 10 to 12 markets, and we are in serious discussions with others."

At the same time, TCC is seeing benefits of a stronger retail division in other core businesses. "As a company, we also have the ability to provide all aspects of real estate to retailers, everything from office space to warehousing to the actual retail sites," Lippe says. "This kind of ability gives us an advantage over our competitors. As a result, we see more of these firms calling us."

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Advantages and disadvantages of acquisitions and mergers

Advantages and disadvantages of mergers and acquisitions (M&A) are determined by the shortterm and long-term company strategic outlook of the new and acquiring companies. This is due to a host of factors including market conditions, differences in business culture, acquisition costs and changes to financial strength surrounding the corporate takeover. A well known example of mergers gone bad was the September 15, 2008 merger between Bank of America and Merrill Lynch. This merger was surrounded by complications ranging from employee bonuses, added debt and forced hands as evident in the April 13, 2009 U.S. Senate Committee on Banking investigation of the merger. ( 7) In the case where short-term financial benefits are not realized, long-term advantages may be seen as a valid and probable reason for the merger or acquisition. This article will discuss advantages and disadvantages of mergers and acquisitions in four parts consisting of pros and cons of M&A decision making, operational and financial advantages, costs, and consumer benefits and drawbacks. Pros and cons of mergers and acquisitions A number of reasons provide sanction for a corporate merger and acquisition, not all of which are necessarily financial in nature. Moreover, M&A is within the scope of the Board of Directors to pursue (1) and the company executives to initiate and execute. Since board members may also be subject to political, social, and personal interests, decisions seemingly in favor of the shareholders may also become quagmired with additional factors. According to Investopedia.com, an estimated 66% of mergers and acquisitions are not successful because of M&A intent. Of the 33% that are considered successful, the mergers and acquisitions achieved a net gain from the M&A with our without bad M&A intent. A number of reasons for the majority of failures exist in addition to the failures themselves indicating a potential disadvantage of M&A activity is a relatively high risk of failure. This is further illustrated in an article from a 2005 article in the Journal of Global Business on M&A preparation. (6) Moreover, the article that refers to numerous M&A case studies and research sources states the reasons for M&A failures include 1) bad basis for decision making on the part of the company leadership, 2) failure to consider and/or incorporate the new company, 3) bad management and 4) overestimating the valuation of the acquired corporation. Despite the reasons some M&A's fail, mergers and acquisitions, regulations of such and their circumstances may harness the characteristics of the decision makers for the net economic

advantage despite possible conflicts of interest, short-term financial and consumer disadvantages. In other words, in theory, mergers and acquisitions may be economically beneficial in terms of reducing complexity of regulatory oversight, increasing global corporate competitiveness, and adding to shareholders net wroth. This is verified by the M&A activity that is successful through increases in equity valuations, larger market share, improved operational efficiency, higher industrial capacity etc. Operational and financial advantages of mergers and acquisitions The operational and financial advantages of mergers and acquisitions are widely documented and may also present the face of M&A activity to shareholders, the public, corporate appeals to legislators etc. These advantages can include increased market share, lower cost of production, higher competitiveness, acquired research and development know how and patents. These and other advantages (2) of M&A are listed below: Increased market share Lower cost of operation and/or production Higher competitiveness Industry know how and positioning Financial leverage Improved profitability and EPS Not all the above advantages of mergers and acquisitions may be realized, but are often included among the reasons for engaging in the corporate activity. When a company is able to benefit from all these advantages it can lead to more stability as a corporate entity and cold also provide for higher political influence and industry leadership. Costs of mergers and acquisitions Mergers and acquisitions can be costly due to the high legal expenses, and the cost of acquiring a new company that may not be profitable in the short run. This is why a merger or acquisition may be more of strategic corporate decision than a tactical maneuver. Moreover, if a poison pill unknowingly emerges after a sudden acquisition of another company's shares, this could render the acquisition approach very expensive and/or redundant. (4) Legal expenses Short-term opportunity cost Cost of takeover Potential devaluation of equity Intangible costs M&A activity can also be exacerbated by the short-term cost of opportunity or opportunity cost. This is the cost incurred when the same amount of investment could be placed elsewhere for a higher financial return. Sometimes this cost does not prevent or deter the merger or acquisition because projected long-term financial benefits outweigh that of the short-term cost. Consumer and shareholder drawbacks
In some cases, mergers and acquisitions may not only disadvantage the shareholders but consumers as well. In both cases, this may happen when the newly formed company becomes a large oligopoly or monopoly. Moreover, when higher pricing power emerges from reduced competition, consumers may be

financially disadvantaged. Some of the potential disadvantages facing consumers in regard to mergers are the following. (3) Increase in cost to consumers Decreased corporate performance and/or services Potentially lowered industry innovation Suppression of competing businesses Decline in equity pricing and investment value

Shareholders may also be disadvantaged by corporate leadership if it becomes too content or complacent with its market positioning. In other words, when M&A activity reduces industry competition and produces a powerful and influential corporate entity, that company may suffer from non-competitive stimulus and lowered share prices. Lower share prices and equity valuations may also arise from the merger itself being a short-term disadvantage to the company.
Varieties of Mergers From the perspective of business structures, there is a whole host of different mergers. Here are a few types, distinguished by the relationship between the two companies that are merging:

Horizontal merger - Two companies that are in direct competition and share the same product lines and markets. Vertical merger - A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker. Market-extension merger - Two companies that sell the same products in different markets. Product-extension merger - Two companies selling different but related products in the same market. Conglomeration - Two companies that have no common business areas.

The reasons for mergers and acquisitions

One of the most common arguments for mergers and acquisitions is the belief that "synergies" exist, allowing the two companies to work more efficiently together than either would separately. Such synergies may result from the firms' combined ability to exploit economies of scale, eliminate duplicated functions, share managerial expertise, and raise larger amounts of capital (Ravenscraft and Scherer 1987). Carlton and Granada hope to save 55 million annually by combining their operations. Unfortunately, research shows that the predicted efficiency gains often fail to materialise following a merger (Hughes 1989). 'Horizontal' mergers (between companies operating at the same level of production in the same industry) may also be motivated by a desire for greater market power. In theory, authorities such as Britain's Competition Commission should obstruct any tie-up that could create a monopoly capable of abusing its power - as it did recently in preventing the largest supermarket chains from buying the retailer Safeway - but such decisions are often controversial and highly politicised. (In the case of Carlton and Granada, the government imposed strict safeguards to

prevent the combined firms from unfairly raising the price of TV advertising. ) However, some authors have argued that mergers are unlikely to create monopolies even in the absence of such regulation, since there is no evidence that mergers in the past have generally led to an increase in the concentration of market power (George 1989), although there may be exceptions within specific industries (Ravenscraft and Scherer 1987). In some cases, firms may derive tax advantages from a merger or acquisition. However, Auerbauch and Reishus (1988) concluded that tax considerations probably do not play a significant role in prompting companies to merge. Corporations may pursue mergers and acquisitions as part of a deliberate strategy of diversification, allowing the company to exploit new markets and spread its risks. AOL's merger with media giant Time Warner, for example, saved it from being affected quite so disastrously as many of AOL's Internet competitors by the 'dot com crash' (Henry 2002). A company may seek an acquisition because it believes its target to be undervalued, and thus a "bargain" - a good investment capable of generating a high return for the parent company's shareholders. Often, such acquisitions are also motivated by the "empire-building desire" of the parent company's managers (Ravenscraft and Scherer 1987).
Why mergers and acquisitions fail

Sometimes, the failure of an acquisition to generate good returns for the parent company may be explained by the simple fact that they paid too much for it. Having bid over-enthusiastically, the buyer may find that the premium they paid for the acquired company's shares (the so-called "winner's curse") wipes out any gains made from the acquisition (Henry 2002). However, even a deal that is financially sound may ultimately prove to be a disaster, if it is implemented in a way that does not deal sensitively with the companies' people and their different corporate cultures. There may be acute contrasts between the attitudes and values of the two companies, especially if the new partnership crosses national boundaries (in which case there may also be language barriers to contend with). A merger or acquisition is an extremely stressful process for those involved: job losses, restructuring, and the imposition of a new corporate culture and identity can create uncertainty, anxiety and resentment among a company's employees (Appelbaum et al 2000). Research shows that a firm's productivity can drop by between 25 and 50 percent while undergoing such a largescale change; demoralisation of the workforce is a major reason for this (Tetenbaum 1999). Companies often pay undue attention to the short-term legal and financial considerations involved in a merger or acquisition, and neglect the implications for corporate identity and communication, factors that may prove equally important in the long run because of their impact on workers' morale and productivity (Balmer and Dinnie 1999). Managers, suddenly deprived of authority and promotion opportunities, can be particularly bitter: one survey found that "nearly 50% of executives in acquired firms seek other jobs within one year". Sometimes there may be specific personality clashes between executives in the two companies. This may prove a problem in the case of Carlton and Granada: Carlton's chief executive Charles Allen and Granada's chairman Michael Green, who will have joint responsibility for running the merged company, have been likened to "ferrets in a sack".

Strategies for a successful acquisition

Why are so many organisations apparently unable to overcome such difficulties? A merger or major acquisition is often a unique, one-off event in the lifetime of a firm; companies therefore have no opportunity to learn from their experience and develop tried-and-tested methods to ensure that the process is carried out smoothly. One notable exception to this is the financialservices conglomerate GE Capital Services, which has made over 100 acquisitions during a fiveyear period (Ashkenas et al 1998). Through this extensive experience, GE Capital has learnt four basic lessons:
1. The integration of acquired companies is an ongoing process that should be initiated before the deal is actually closed. During the period in which the acquisition is being negotiated and subjected to regulatory review, the management of the two companies can liaise with each other and draw up a clear integration strategy. Starting earlier not only allows the integration to proceed faster and more efficiently, but also gives GE Capital the opportunity to identify potential problems (such as drastic differences in management style and culture) at a stage when it is not too late to abandon the deal if the difficulties encountered seem so severe that the acquisition is likely to fail. Unfortunately, however, even if a very thorough investigation is done prior to the acquisition, there are often potential problems that will not manifest themselves until long after the deal has been done (Ravenscraft and Scherer 1987). It is also impossible to take early steps towards integration in the case of a hostile takeover bid (where the managers of the company being acquired refuse to co-operate with their potential buyers). 2. Integration management needs to be recognised as a "distinct business function", with an experienced manager appointed specifically to oversee the process. The 'integration managers' that GE Capital selects to oversee its acquisitions can come from a wide variety of backgrounds, but all must have the interpersonal skills and cultural sensitivity necessary to foster good relationships between the management and staff of the parent company and its new subsidiary. 3. If uncomfortable changes (such as layoffs and restructuring) have to be made at the acquired company, it is important that these are announced and implemented as soon as possible - ideally within days of the acquisition. This helps to avoid the uncertainties and anxieties that can demoralise the workforce of a newly-acquired company, allowing employees to move on and to focus on the future. 4. Perhaps the most important lesson is that it is important to integrate not just the practical aspects of the business, but also the firms' workforces and their cultures. A good way to achieve this is to create groups comprising people from both companies, and get them to work together at solving problems.

Other authors, however, question whether aiming for total integration of two contrasting company cultures is necessarily the best approach. There are, in fact, four different options for reconciling cultural differences: complete integration of the two cultures, assimilation of one culture by another, separation of the two cultures (so that they are maintained side by side), or deculturation (eventual loss of both cultures). The optimal strategy may depend upon the degree of cultural difference that exists between the organisations, and the extent to which each values its own culture and identity (Appelbaum et al 2000).

Tetenbaum (1999) suggests an alternative set of "seven key practises" to assist with a successful merger or acquisition:
1. Close involvement of Human Resources managers in the acquisition process; they should have a say in whether or not the deal goes ahead. 2. "Building organisational capacity" by ensuring that close attention is paid to the retention and recruitment of employees during the acquisition. 3. Ensuring that the integration is focused on achieving the desired effect (for example, cost savings), while at the same time ensuring that the core strengths and competences of the two companies are not damaged by the transition. 4. Carefully managing the integration of the organisations' cultures. 5. Completing the acquisition process quickly, since productivity is harmed by the disorganisation and demoralisation that inevitably occur while the change is underway. 6. Communicating effectively with everyone who will be affected by the change. Other authors agree that "being truthful, open and forthright" during an acquisition is vital in helping employees to cope with the transition (Appelbaum 2000). 7. Developing a clear, standardised integration plan. Tetenbaum cites the example of Cisco Systems, which, like GE Capital, makes large numbers of acquisitions and has been able to learn from its experiences and build up tried-and-tested processes for carrying them out successfully

Mergers and Acquisitions are also beneficial When a firm wants to enter a new market When a firm wants to introduce new products through research and development When a forms wants achieve administrative benefits To increased market share To lower cost of operation and/or production To gain higher competitiveness For industry know how and positioning For Financial leveraging To improve profitability and EPS

Difference Between Merger and Acquisition

Although merger and acquisition are often used as synonymous terms, there is a subtle difference between the two concepts.

In the case of a merger, two firms together form a new company. After the merger, the separately owned companies become jointly owned and obtain a new single identity. When two firms merge, stocks of both are surrendered and new stocks in the name of new company are issued. Generally, mergers take place between two companies of more or less same size. In these cases, the process is called Merger of Equals. However, with acquisition, one firm takes over another and establishes its power as the single owner.Generally, the firm which takes over is the bigger and stronger one. The relatively less powerful, smaller firm loses its existence, and the firm taking over, runs the whole business with its own identity. Unlike the merger, stocks of the acquired firm are not surrendered, but bought by the public prior to the acquisition, and continue to be traded in the stock market. Another difference is, when a deal is made between two companies in friendly terms, it is typically proclaimed as a merger, regardless of whether it is a buy out. In an unfriendly deal, where the stronger firm swallows the target firm, even when the target company is not willing to be purchased, then the process is labeled as acquisition. Often mergers and acquisitions become synonymous, because, in many cases, a bigger firm may buy out a relatively less powerful one and compel it to announce the process as a merger. Although, in reality an acquisition takes place, the firms declare it as a merger to avoid any negative impression

Reasons Behind Mergers

Abstract: Mergers, acquisitions and takeovers have always kept the interest of economists alive. Mergers may prove to be beneficial depending on the strategies adopted, but it would not be right to say that all mergers have been successful.

There are many reasons behind mergers and takeovers. For instance, a particular company is very good at administration while some other company is good at marketing strategies or in operations. If the expertise of both are amalgamated, it produces synergy. A new company is formed in the process, which has a potential much higher and superior to what the individual companies previously had. By applying the rules of synergy effectively, a merger can be made a success. Several other reasons for mergers are as follows: Enhancing company productivity. There is also a general tendency that the merged companies would monopolize the market, thereby ousting others. Political factors. Cutting down expenses and increasing revenues. When a company is not self sufficient to operate on its own. Hindrances may be in the form of insufficient investment capacity, excessive competition due to which the company is not able to keep pace with other companies. Under such circumstances, the subsidiaries may merge with the parent company for better output.

Failure Of Mergers And Acquisitions

Missouri Estate Tax Introduction In this article we have analyzed the causes of merger and acquisition failures. One cause is the bullish stock market, while another is that merging companies may belong to diverging corporate cultures.

Mergers and acquisitions may seem to be beneficial, resulting in the amalgamation of two conglomerates. They have been found to lead to cost cuts and increased revenues. However, merger and acquisition failures are not uncommon. These failures may harm the companies, tarnish their credibility in the market, and ruin the confidence of their shareholders. Studies reveal that approximately 40% to 80% of mergers and acquisitions prove to be disappointing. The reason is that their value on the stock market deteriorates. The intentions and motivations for effecting mergers and acquisitions must be evaluated for the process to be a success. It is believed that when two companies merge the combined output will increase the productivity of the merged companies. This is referred to as "economies of scale." However, this increase in productivity does not always materialize.

There are several reasons merger or an acquisition failures. Some of the prominent causes are summarized below: If a merger or acquisition is planned depending on the (bullish) conditions prevailing in the stock market, it may be risky. There are times when a merger or an acquisition may be effected for the purpose of "seeking glory," rather than viewing it as a corporate strategy to fulfill the needs of the company. Regardless of the organizational goal, these top level executives are more interested in satisfying their "executive ego." In addition to the above, failure may also occur if a merger takes place as a defensive measure to neutralize the adverse effects of globalization and a dynamic corporate environment. Failures may result if the two unifying companies embrace different "corporate cultures." It would not be correct to say that all mergers and acquisitions fail. There are many examples of mergers that have boosted the performance of a company and addressed the well-being of its shareholders. The primary issue to focus on is how realistic the goals of the prospective merger are.

De Merger
In the article below, information about de merger has been provided. A de merger may have many advantages as well as disadvantages. Many tools to effect changes in the corporate structure of a company has been worked out, which assists in carrying out the same.

Just as mergers are captivating, de mergers can be interesting too. There are instances when a big company gets transformed into a smaller firm due to selling of its subsidiaries. De mergers may be appealing to the shareholders of a company. There are various tools available for bringing about this restructuring process.

Tools for de merger:

The following tools are used for carrying out the process of de merger: Equity carve outs

Sell offs Tracking stock

Spin off

Equity carve outs:

Shareholder value gets enhanced by the use of this de merger method of equity carve outs. In this process, a subsidiary belonging to a parent firm is made public by IPOs or initial public offerings. This results in the sell off of shares partially. A new firm, which is publicly listed comes into being. However, the controlling power remains in the hands of the parent firm. This process is embraced when it is found that the subsidiary is progressing at a faster pace than the parent company.

Sell offs:
When a subsidiary of a parent company is sold off, the process is referred to as a "sell off". Sell off is carried out in case of subsidiaries, which do not find a place in the core strategy of the company.

Tracking stock:
A special type of stock is used to keep track of the value of any one segment of a firm. A publicly held company issues the tracking stocks.

Spin offs:
Spin offs occur when a subsidiary company gets the status of an independent entity. Under such circumstances, shares belonging to the subsidiary are distributed by the parent firm by means of stock dividends.

Advantages of de merger:
The advantage of de merger is that the shareholders get access to better and updated information about the business as separate financial details are provided.

Disadvantage of a de merger:
Since the size of the de merged firms are smaller than those of the parent firm, tapping the credit market may be a difficult task especially for a small company who may not be able to afford the expensive finances.

Mergers and acquisitions in India

are on the rise. Volume of mergers and acquisitions in India in 2007 are expected to grow two fold from 2006 and four times compared to 2005. India has emerged as one of the top countries with respect to merger and acquisition deals. In 2007, the first two months alone accounted for merger and acquisition deals worth $40 billion in India. The estimated figures for the

entire year projected a total of more than $ 100 billions worth of mergers and acquisitions in India. This is two fold growth from 2006 and a growth of almost four times from 2005.

Mergers and Acquisitions in different sectors in India

Sector wise, large volumes of mergers and mergers and acquisitions in India have occurred in finance, telecom, FMCG, construction materials, automotives and metals. In 2005 finance topped the list with 20% of total value of mergers and acquisitions in India taking place in this sector. Telecom accounted for 16%, while FMCG and construction materials accounted for 13% and 10% respectively. In the banking sector, important mergers and acquisitions in India in recent years include the merger between IDBI (Industrial Development bank of India) and its own subsidiary IDBI Bank. The deal was worth $ 174.6 million (Rs. 7.6 billionsss in Indian currency). Another important merger was that between Centurion Bank and Bank of Punjab. Worth $82.1 million (Rs. 3.6 billion in Indian currency), this merger led to the creation of the Centurion Bank of Punjab with 235 branches in different regions of India. In the telecom sector, an increase of stakes by SingTel from 26.96 % to 32.8 % in Bharti Telecom was worth $252 million (Rs. 10.9 billion in Indian currency). In the Foods and FMCG sector a controlling stake of Shaw Wallace and Company was acquired by United Breweries Group owned by Vijay Mallya. This deal was worth $371.6 million (Rs. 16.2 billion in Indian currency). Another important one in this sector, worth $48.2 million (Rs 2.1 billion in Indian currency) was the acquisition of 90% stake in Williamson Tea Assam by McLeod Russell India In construction materials 67 % stake in Ambuja Cement India Ltd was acquired by Holcim, a Swiss company for $634.9 million (Rs 27.3 billion in Indian currency