Ø Merger is the combination of two or more firms into one of the firms. Merger could be horizontal, vertical or conglomerate

• Ø Merger is the combination of two or more firms into one of the firms. Merger
• could be horizontal, vertical or conglomerate. A merger results into an economic
• advantage when the combined firms are worth more together than as separate
• entities. Merger benefits may result from economies of scale, economies of
• vertical integration, increased efficiency, tax shields or shared resources. Merger
• should be undertaken when the acquiring company’s gain exceeds the cost. Cost
• is the premium that the buyer (acquiring company) pays for the selling company
• (Target Company) over its value as a separate entity. Discounted cash flow
• technique can be used to determine the value of the target company to the
• acquiring company. Merger and acquisition activities are regulated under
• various laws in India. The objective of the laws as well as the stock exchange
• requirements is to make merger deals transparent and protect the interest of all
• shareholders.
• Ø Horizontal Merger is the combination of two or more firms in the same stage
• of production/distribution/area of business.
• Ø Vertical Merger is combination of two or more firms involved in different
• stages of production or distribution.Conglomerate Merger is the combination of firms engaged in unrelated lines
• of business. Acquisition or takeover means a combination in which the acquiring
• company acquires all or part of assets (shares) of the target company. In
• acquisition, there exists willingness of the management of the target company to
• be acquired while this may not be so under takeover.
• Ø Leveraged Buy-Out (LBO) In a leveraged buy out a company is bought by
• raising most funds through borrowings. When the company is boughtout by its
• own managers, it is called management buyout (MBO). After acquisition, the
• LBO generates lot of profits and creates high value. Lenders get high return by
• converting their loans into equity or using warrants buying the company’s
• shares..
• Ø Pooling of Interest Method In the pooling of interest method, assets and
• liabilities are combined at book values.
• Ø Purchase Method In the purchase method, the assets and liabilities are
• revalue and then combined. The difference between book values of assets and
• liabilities and their revaluation is shown as goodwill or capital reserve.