The term merger has not been defined per se in any of the Acts including the Companies Act, 2013 or the Income Tax Act, 1961. A merger is a combination of two companies where one corporation is completely absorbed by another corporation. Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment. There are various types of mergers that can take place. Some of these are:-
1. Horizontal mergers: In horizontal mergers two firms operating in same industry or producing ideal products combines together to form one firm. The main objectives of horizontal mergers are to benefit from economies of scale, reduce competition, achieve monopoly status and control the market.
2. Vertical merger: A vertical merger can happen in two ways. One is when a firm acquires another firm which produces raw materials used by it. For e.g., a car manufacturer acquires a steel company, a textile company acquires a cotton yarn manufacturer etc.
There is another form of vertical merger which happens when a firm acquires another firm which would help it get closer to the customer. For e.g. a consumer durable manufacturer acquiring a consumer durable dealer etc.
3. Conglomerate merger: Conglomerate merger occurs when two firms operating in industries unrelated to each other combine together. In this case, the new business of the target company is entirely different from those of the acquiring company. For e.g. a car manufacturer merging with a cement manufacturer, a textile company merging with a software company etc.
4. Concentric merger: It refers to combination of two or more firms which are related to each other in terms of customer groups, functions or technology. For eg., combination of a computer system manufacturer with a UPS manufacturer.
5. Forward merger: In a forward merger, the target merges into the buyer. For e.g., when ICICI Bank acquired Bank of Madura, Bank of Madura which was the target, merged with the acquirer, ICICI Bank.
6. Reverse merger: In this case, the buyer merges into the target and the shareholders of the buyer get stock in the target. This is treated as a stock acquisition by the buyer.
7. Subsidiary merger: A subsidiary merger is said to occur when the buyer sets up an acquisition subsidiary which merges into the target.
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