In today’s ever-changing business landscape, mergers have emerged as a vital strategy for companies to tackle the challenges of a complex market. These mergers come in different shapes and sizes, each with its distinct traits and consequences. To help you understand this dynamic field better, let’s take a closer look at mergers and explore the various types that play a crucial role in shaping the business world.
1) Horizontal Merger: The companies which are selling same products and services are combined,it is called as horizontal merger. It is done for reducing competition among them. It also helps in maintaining economies of scale, marketing economies, reducing the duplication of products and services. For example, if there is merger between two hotels it is known as horizontal merger.
2) Vertical Merger: This type of merger occurs when the firm acquires either the upstream or the downstream of another firm. In upstream merger, the firm supplying raw-materials is merged and in downstream selling to the customers or the distribution channel is merged. This type of merger occurs within different department like production or distribution between the firms producing same line of products and services. It is done among two or more companies producing same products. The merger happens at different stages of such firms like a gas rproducing company open its own gas agency. For example, i wheat flour producing company join hands with the dealer and farmer selling wheat plant. Various garments producing compan opening their factory outlet. These are the examples of vertica merger. It is done to have fast production and on-time service.
3) Conglomerate Merger: The merger happens between two different company are known as conglomerate merger. These type firms are not of same type either horizontally or vertically. For example, the merger between L&T and Voltas Ltd, merge between manufacturing company and insurance company, merge between textile company and vegetable oil mill. This kind of merger is done to diversify the activity. The common characteristics can be technology, distribution channel, etc..
Types of Conglomerate Mergers
i) Product Extension Merger: The merger happens among the firms which are selling different products but has same production process or market channel is known as product extension merger. Market Extension Merger: When there is merger among the company selling the same products, but have different market for selling a product is known as market extension merger. Pure Merger: In pure merger, the merger happens among different firms.
4) Congeneric Merger: In congeneric merger, the firm of same industry are merged but they do not have anything in common like buyer, customer or supplier like a merger between man salon and female salon. For example, Prudential’s acquisition of Bache & Company.
5) Reverse Merger: In the reverse merger, a profit earning company merges into the loss bearing company and the identity of profit earning company is lost. It is the opposite of ordinary merger in which the profit earning company takes over the loss earning company.
The reverse merger is the easy method of going public without any expenditure and less time is required as in case of raising the IPO and it also helps in taking use of the provision of Income Tax Act, 1961 which lets the company carry forward the losses to set off against the profit.
Other Kinds of Merger: The various other types of mergers are as follows:
i) De Facto Merger: It is the merger where there is just the purchase of assets of another company but in legal term it is known as merger. It is not announced as the merger but has the acquisition of assets of one firm and voting stock of another firm. The court may regard as a legal merger for combining the appraisal of the firms, voting right of the shareholders, etc. According to de facto merger doctrine, some courts examine the factors which has led to merger and also decide whether the statutory protection should be given to the shareholders. Hence, when there is acquisition of assets in a merger there is the requirement that the shareholder should be given same right as in the statutory merger.
ii) Cash Merger: In this type of merger the firm acquires the share of the company in exchange of cash in place of exchanging their own shares. It is done when the shareholder of target firm wants to be related with the new firm made due to the merger. In this. some shareholders want cash for their shares while the other wants shares in the surviving company.
iii) Short-Form Merger: In this merger, the parent company acquires the total voting rights in the subsidiary company. It does not follow any provision of statutory compliance and is also economical. It is done without the approval of shareholders under the following conditions when:
a) The shares of company are given to the small group of shareholders which approves the merger.
b) The various legal provisions of states allows the short-form of merger.
If these conditions are satisfied then the majority of shareholders and board of directors will support the merger without the concern of minority shareholders. In various legal provisions, there is method of merging in which approval is not required.
