Mergers and Acquisitions

(In Nepalese Perspective)

Merger:

A merger is a combination of two companies to form a new company. In a merger, the two companies are brought together to create an existence of a new company while abandoning the legal existence of the old two companies. It means the two companies are mixed up as a single unit to create a new business company. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place.

For eg. :      Himchuli Bikash Bank and Birgunj Finance

Acquisition:

          An acquisition is the purchase of one business or company by another company or other business entity. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquiree or merging company (also termed a target) is or is not listed on public stock markets.

For eg. :      Standard Chartered Bank and Grindlays Bank

NOTE: ‘Consolidation’ actually occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently..

Whatever may be there in the defination, in practice, however, actual mergers of equals don’t happen very often. Usually, one company will buy another and, as being bought out often carries negative connotations, the term is named merger even if it is the acquisition. So, in order to overcome this shortcoming the terms Merger and Acquisiton (M&A) is taken together.

to be continued.......

 Next Blog: Advantages of Mergers and acquisitions