Definition of Merger: Purpose, Type, and Example of a Merger Company

What is a merger? In general, the notion of a merger is a process of merging two companies in which one of them still stands and uses the name of the company while the other company disappears and all of its wealth is included in the standing company.

There is also an explanation that the meaning of merger is the merger of two companies into one, where the company that does the merger takes over all the assets and obligations of the company that receives the merger.

Merger is one form of company external expansion by combining two or more companies, where only one company name remains standing while the other company is dissolved on a legal basis without liquidation first. The merger process can be described as follows;

Company A + Company B = Company A

Also read: Understanding Acquisitions

Understanding Mergers According to Experts

In order to better understand what a merger is, we can refer to the opinions of the following experts:

1. Abdul Moin

According to Abdul Moin (2003), the notion of a merger is the merger of two or more companies which then only one company remains alive as a legal entity, while the others stop their activities or disperse. The company that is liquidated transfers its assets and liabilities to the company that takes over so that the company that takes over experiences an increase in assets.

2. ME Hitt

According to ME Hitt, a merger is a business strategy implemented by combining two or more companies that agree to unite their operations on a relatively balanced basis because they have the resources and capabilities that together can create a stronger competitive advantage.

3. Zaki Baridwan

According to Zaki Baridwan (Hamid 1998), the notion of a merger is the process of taking over shares of a company by another company whereby the company that is taken over is no longer a stand-alone company, but has become part of a company that has taken over.

4. Floyd A. Beams and Amir Abadi Yusuf

According to Floyd A. Beams and Amir Abadi Yusuf (2000), the notion of merger is a process of expropriation by a company of all operations of another business entity in which the entity that has been taken over is dissolved.

Also read: The Meaning of Consolidation

Types of Mergers

In general, the merger process can be grouped into four types. The types of mergers are as follows:

1. Horizontal Mergers

This is a merger process that combines two or more companies where the type of business is still the same. For example, corporate mergers between bread companies, mergers between financial service companies, and others.

2. Vertical Merger

This is a merger process that merges several interconnected companies, for example in a sequential production flow. For example, a tire company is merged with a car company.

3. Conglomerates

This is a merger process that combines several companies that produce products that are not related to each other. For example a food company company merged with a car company. The purpose of conglomerates is to increase the growth of business entities by exchanging shares between the merged companies.

4. Generic Kon Merger

This is a merger process that combines two or more companies where the forms of business are still related but with different products. For example, a merger between a bank and a finance company.

Also read: Definition of the Company

The purpose of the Merger

Of course the merger is done because there are certain goals and reasons to be achieved. Referring to the definition of merger, as for some of the objectives of the merger are as follows:

1. Growth or Diversification

A company can do a merger or acquisition if it wants to grow faster, both in size, the stock market, and business diversification.

2. Increase Funds

Companies that want to expand internally will definitely need funds. The need for these funds can be obtained by external expansion, which is to merge with companies that have high liquidity.

3. Creating Synergy

One of the goals of merging is to achieve a synergy, which is to produce a level of economic scale. Synergy will be clearly seen when companies merge with businesses whose business forms are the same because they can make workforce and function efficient.

4. Tax Considerations

Spending on taxes may result in losses for a company. Companies that experience tax losses can merge with companies that generate profits to take advantage of tax losses. In this case, the company making the acquisition will increase the combination of income after tax by reducing the pre-tax income of the acquired company.

5. Improve Company Skills

A company can have difficulty developing because of a lack of skills in management and technology. In order to overcome these problems, a company can join with other companies that have management and qualified technology.

6. Protect Yourself From Takeover

Every company has the potential to become a hostile takeover target. The merger acquires another company, and finances its takeover with debt, because of this debt burden the company’s obligations become too large to be borne by interested bidding firms.

7. Increase Owner Liquidity

Every company that does a merger has the opportunity to have greater liquidity. When companies are bigger, the stock market will be wider and easier to obtain so it is more liquid than smaller companies.

Also read: Understanding Stakeholders

Example of a Merger Company

The following are some examples of companies that merged or merged corporate entities:

Also read:

• Definition of Holding Company
• SWOT analysis

Thus a brief explanation of the definition of mergers, objectives, types, forms, and examples of companies that do mergers. Hopefully this article is useful and broadens your horizons.