Tuesday, May 19, 2015

Merger, Acquisition, Amalgamation, JV


Merger

A merger refers to a combination of two or more companies, usually of same size, into one company.

What happens in merger?
  • The shareholders of the company being merged become shareholders of the larger company
  • The assets and liabilities of a company get vested into the assets and liabilities of another company
  • Identity of one ore more entities (smaller companies) is lost to the larger company (to whom the smaller companies are merged), but no new entity is formed

It can be thought as a marriage between two companies of same size, in which one company survives its own name (larger company), and the other (smaller company) ceases to exist as a legal entity.

For example, merger of ING Vysya Bank with Kotak Mahindra Bank (KMB)


Types of Mergers

1.  Horizontal Merger - It occurs when the two merging companies both produce similar product in the same industry or sector. 

For example, merging of Coca-cola and Pepsi beverage division would be a Horizontal merger.


2.  Vertical Merger - It occurs when both the merging companies operate in the same industry, but at different stages in the production of the same finished good.

For example, merger of a tire producing company with a car manufacturing company would be a Vertical merger.


3.  Conglomerate Merger - It occurs when the two merging firms operate in different industry or sector.

For example, if a shoe company, merges with a soft drink company, then it would be an example of Conglomerate Merger.




Amalgamation

Amalgamation is the transfer of all or some part of assets and liabilities of one or more companies to a new company.

What happens in Amalgamation?
  • All of the companies lose their identities, and a new separate entity is born
  • Shareholders of all the companies get shares of the new company

For example, Maruti Motors operating in India and Suzuki based in Japan amalgamated to form a new company, named Maruti Suzuki (India) Limited.




Acquisition

Acquisition of a company (usually smaller) by another company (usually bigger) refers to the transfer of ownership right in the property and asset of acquired company to the acquiring company, without any combination of companies. 

What happens in Acquisition?
  • Acquiring company purchases majority stake (>50 %) in the acquired company, thus getting the controlling/ownership right
  • Both the acquiring and the acquired company survive as legal entities.

For example, Facebook acquired Whatsapp in USD 19 billion last year.




Joint Venture (JV)

Joint Venture is a business agreement between two or more companies for a finite time, to develop a new entity and new assets, by contributing their equity/stock.

The companies exercise their control over the new enterprise, and share - revenues/profits and expenditures/losses.


What happens in Joint Venture?
  • Both the companies remain independent. They just contribute in the Joint Venture for a particular product as per agreement, for a finite time
  • Control, Profits, Losses, Costs, etc. are shared by themselves as per agreement

For example, Tata Docomo is a joint venture between Tata Teleservices (India) and NTT Docomo (Japan).





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