Mergers & Acquisition 101

To make a business successful, there are various things managers would do. One such tactic is Mergers and Acquisitions. These terms are used interchangeably in the newspapers, but they are quite different.

An Acquisition means when a company buys a part of the other company. But when one company buys the other company completely then, it’s called a Merger. There are two parties in a merger, an acquirer (one who is buying the company) and a Target (the company being bought) A merger can take several forms and are done with a particular motivation. Let us take a Statutory merger, it is a case where a company buys all the assets and liabilities of the target company. The target company is usually smaller and its existence comes to an end. Such mergers are common to see when a big company has lots of profits in their books, which means they have to pay huge taxes. To reduce such taxes, a company may merge with a loss-making target company. Another example of a merger is a Subsidiary merger, wherein the acquirer buys the target company but the target company will keep its name. The target in this case will not come to an end. Flipkart was bought by Walmart because Flipkart is a well- known e-commerce brand. Another example of such a type of merger is P&G buying Gillette, because of its established brand name. With a Consolidation, two companies merge and form a different company and lose their previous identity. The motivation to consolidate with other companies can be to increase market share, cutting down production costs. Recently, Vodafone and Idea merged to form VI to survive the huge losses, thanks to RelianceJio.

Companies merge with the intentions to grow but this is not always the case. Management of big companies has great incentives behind mergers. A merger can be done to show an increase in sales and sometimes to gain a monopoly of a particular industry. They also come as a piece of bad news for workers, because they will be removed from the target company. Sure, mergers are a big milestone in a company but almost always someone is left unhappy. Concept: Shivangi Bhatia Editor: Minakshi Agrawal Todi

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