What Corporate Mergers Mean and Various Types of Corporate Mergers

Corporate mergers are an important aspect of business which deals with buying and selling, and the combining of different corporate organisations which help enterprises grow rapidly in their respective sectors without creating subsidiaries. In the pure sense, a merger takes place when two firms decide to go ahead as a single new company and not remain two separate entities which are separately owned and operated. Such an action is mainly referred to as 'a merger of equals'. Both the firms are usually about the same size. Stocks of both the companies are then surrendered and a stock of a new company is then issued. For example in 1999, when we saw the merger of Glaxo Wellcome and Smithkline Beecham, these two firms no longer existed after the merger and a new company called GlaxoSmithKline was formed. However, the actual companies of equal status seldom happens as one company usually buys the other and allows the other company to call it a merger, even though technically it's an acquisition. Being bought by another company often has not so positive connotation, therefore companies call it corporate mergers.

There are various types of corporate mergers. The first is a horizontal merger in which two companies of the same sector merge with each other. The second is the vertical merger in which a company buys the supplier of the business which is to reduce the operational costs. The remaining two are arm's length corporate mergers and strategic corporate mergers. Arm's length corporate mergers are approved by the disinterested directors and disinterested stakeholders. Both the elements are complimentary and not substitutes. The disinterested directors are important because they have the capability to act as bargaining agents which the stockholders do not. But, the directors may not always be as faithful and effective owing to which the disinterested stakeholders come into the picture. Now, in the case of strategic corporate mergers, the mergers are dependent on the long-term target of the acquired firm. This option is chosen in order to create synergies in the long run by increased market share, corporate strength of business and a broad customer base. In this case, the strategic acquirer is also willing to pay a high amount to the other firm after looking at the synergy value that is created after the merger.

They have issues leading to brand problems. When two companies with two brands merge, it becomes difficult for them to decide which brand name should be kept and which should be discarded. Some companies choose to use both the names together just like Glaxo Wellcome and Smithkline Beecham, which merged together and became GlaxoSmithKline. As a consumer, it is important to know the pros and cons of corporate mergers because they can have an effect on consumers.

Article Source: http://EzineArticles.com/7231575