How Is a Merger Approved?

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Mergers between companies ideally allow the parties to grow their businesses quickly and efficiently. There are several steps that make up the merger approval process. Companies that follow the steps have a better chance of having a successful merger.

Offer Extended

One of the first steps in how mergers are approved includes the offer. One company approaches the other with a deal. Preliminary terms are discussed related to the price and logistics of the merger. Feasibility studies will also be conducted and discussed to learn if the merger would be viable to both parties. If both sides agree to these preliminary terms, they take the offers and discussion points back to their respective boards.

Reporting To Federal Agencies

If both sides are in favor of the initial terms of the deal and wish to move forward, they may begin the federal regulatory process.

If the companies proposing the deal are valued at more than $65 million individually, the proposed merger has to be reported to the Federal Trade Commission and the Department of Justice. When these agencies receive the filing, they have 30 days to conduct a preliminary pre-merger investigation, which puts the merger on hold. After the agencies complete the review, they can find in favor or the transaction or against it.

According to the Federal Trade Commission, if one of the agencies requests additional information from the companies, they must comply. Naturally, if the parties don’t comply and provide the information, or if the agencies don’t approve the merger, it cannot go through.


As part of the merger process, companies don’t have to get the approval of their employees, but they should communicate to them that a merger is in the works.

According to a report published in 1999 by the accounting firm KPMG, companies that give priority to communications were more likely than others to have a successful deal. Furthermore, in the report, "Unlocking Shareholder Value: The Keys To Success," the firm found that companies that had poor communications with their workers appeared to pose the greatest risk to the deal’s success. That risk, in fact, had more of an impact than poor communication to shareholders, suppliers or customers, according to KPMG.

Board of Directors

The merger will have to be approved by the companies’ board of directors. Those boards will have to be combined if the merger goes through. Combining the boards can be a challenge. One issue is trying to maintain a board that represents as many geographical areas as possible without having too many or too few members. A formal plan for unifying operations must also be approved.



About the Author

Valerie Fox is a business reporter and editor specializing in consumer affairs and debt management. She has been a writer since 1994, also covering politics, housing and the stock and bond markets. Fox has written for Cox, Gannett and Knight-Ridder newspapers. She holds a Bachelor of Science in economics from the University of Florida.

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