SEARCH THE BUSINESS GLOSSARY
combination of two or more companies into one, with only one company retaining its identity. Typically, the larger of the two companies is the company whose identity is maintained. It often involves an exchange of stock, which avoids taxes; the purchase (accounting) method, where goodwill is recorded, must be used. The merger of two companies can be accomplished in one of two ways. The acquiring company can negotiate with management of the other company, or it can make a tender offer directly to the stockholders of the company it wants to take over.
combination of two or more companies, where the amount paid over and above the acquired company's book value is carried on the books of the purchaser as goodwill; or a consolidation, where a new company is formed to acquire the net assets of the combining companies. Strictly speaking, only combinations in which one of the companies survives as a legal entity are called mergers or, more formally, statutory mergers; thus consolidations, or statutory consolidations, are technically not mergers, though the term merger is commonly applied to them. Where an acquisition takes place by the purchase of assets or stock using cash or a debt instrument for payment, the merger is a taxable capital gain to the selling company or its stockholders.
Mergers can also be classified in terms of their economic function. Thus a horizontal merger is one combining direct competitors in the same product lines and markets; a vertical merger combines customer and company or supplier and company; a market extension merger combines companies selling the same products in different markets; a product extension merger combines companies selling different but related products in the same market; a conglomerate merger combines companies with none of the above relationships or similarities.See also acquisition
combination of two or more organizations through stock purchase, cash payment, or a combination. Managements in both banks generally consent to mergers in the banking industry, or in the case of a bank acquiring a failed institution, the approval of bank regulatory agencies is necessary. Amerger is called an acquisition when one of the parties to the transaction, usually but not always the larger one, takes over a smaller company and consolidates the two organizations into a single entity. See also purchase acquisition .
Note that the purchase method of accounting is to be used for all business mergers initiated after June 30, 2001, according to SFAS No. 141. Previously, a business combination could be classified as either a purchase or a pooling of interests. If any of the twelve criteria for pooling was not met, the combination became reportable as a purchase transaction.
classified as a type A reorganization, in which one corporation absorbs the corporate structure of another, resulting in liquidation of the acquired enterprise. If no boot is received, the reorganization may be tax free.
the fusion of 2 or more interests, such as businesses or investments.
Examples: Examples of mergers are:
- conglomerates-corporations that are not customers or suppliers to each other or competitors
- corporations-union of 2 or more by transferring property to one that survives, and issuing its shares to stockholders of the corporation that ceases to exist
pooling of interests
Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.