Merge or Mergers

Definition of Merge or Merger

Merge or merger is the technique of risk management in which two or more companies combine for reducing the side-effect of destructive competition. Merging is also known amalgamation. In merge, two or more companies are liquidated and then their business is taken by new company. Benefits are taken by both old companies after merging. Old shareholders decide the amount of shares capital which they will take in new company according to past shares.

For Example

A and B company are doing same business. 1 Jan. 2010, A& B Company started process of merging. 20th Jan. 2010, after completing all formalities, both companies merged and A new company named C came into existence. This C company is created by A and b Company.

Aim of Merge or Merger

There are main three aims of merge or merger. One is strategic, second is financial and third is organizational.

If we don’t categorize it, we can write following general aims of merge.

1. Main aim of merging is to reduce the risk of business. Business risk may be liquidity, solvency and competition. In risk management, it is general saying that merger means the blast against competitional risk.

2. To reduce the cost of production.

3. To create the brand.

4. To create monopoly.

5. It is the way to increase corporate finance.

Merging or Amalgamation in India

If two or more big corporate have decided to merge under merger deal for business development, at that time, it is inevitable to inform government of India about this deal. They should follow MRTP Act 1969  and Competition Act 2002 regarding mergers.

Main Kinds of Mergers

You can see in daily financial newspaper or google update search that big corporations deal of merger everyday. They want to promote their business globally. By Using of any of following kind, they can deal of merger.

1. Horizontal Base Mergers

When two companies are selling same product in same geographical market, they have to face competition. For abolishing competition, they merge with each other. That merger is called horizontal base mergers.

2. Vertical Base Mergers

When two companies have deep relationship as good buyer and seller, they can create new company for reducing the prices of products and to control over the system of manufacturing because raw material is not supplied by any other company but it is supplied by any one of merged company, so it will be easy to gear up the speed of production without any delay of raw material at minimum cost.

3. Market Base Mergers

It is that type of mergers in which two companies join for increasing the sale of product under same brand. Suppose, A company is famous in India and B Co. is famous in US. If both are merged, it will easy to sell product in US and in India. It will also helpful for both companies to succeed in different part of world.

4. Product Base Mergers

If two companies deal different products in same geographical area, after that, if they merge, they can make the hub market where customers can buy everything without going any other place.

Framework for Mergers

Before making framework or structure for mergers, we should recommend MBA students to study and learn above aims and statutory provisions of mergers, in the creation of framework for mergers, we can take following steps:

1st Step - To Determine the Conditions of Mergers

Companies who are interested in merge should make a clear list of conditions which will apply after merge.

2nd Step - To Calculate the Value of New Company and Division of Share of Old Shareholders

Check the update market prices to calculate the current value of assets and liabilities of new company. Do strict agreement with old major and minor shareholders about what is their share in new company to avoid any quarrel.

3rd Step – To Fulfill All Tax Liabilities

Before merging, old companies should fulfill all pending tax liabilities and obligations or carry forward in new company.

4th Step – Calculation the Interest of Minorities

If you know to calculate the interest of minorities in subsidiary company, same way, we have to calculate the interest of minorities in mergers who did not want to merge the company. After this, pay them before merger.

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Accounting Education: Merge or Mergers
Merge or Mergers
Accounting Education
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