Mergers and consolidations are both ways in which companies can combine to add assets, increase market share and grow profits. A merger is different from a consolidation, but both follow essentially the same process.
In a merger, one company takes over another, including all assets and liabilities. The company that takes over remains active, while the one that is acquired essentially ceases to exist.
In a consolidation, two or more companies merge to form one new, larger company. All of each company’s assets and liabilities then become the property of the new company.
When competing companies merge, the process is called horizontal integration. If a company merges with its suppliers or customers, a vertical integration occurs.
Both mergers and consolidations are governed by federal and state laws, and follow a specified process. First, each company’s board of directors has to approve the merger or consolidation. Second, stockholder of each company have to vote and approve. Third, the state in which the transaction will occur must give the go-ahead.
Federal and state governments have anti-trust laws which could stop a merger or consolidation, especially if the transaction would give the new company an unfair advantage, or monopoly, over its competitors.
- Image by Flickr.com, courtesy of Kevin Krejci