Merger

A merger refers to a combination of two or more companies, usually of not greatly disparate size, into one company. It differs from an acquisition in that it is not really true from a business or economic point of view that one company bought the other - although this must be so from a legal or accounting point of view.

A merger is a combination of equals. Therefore it is usual for the board of a merged company not to be dominated by the management of either of its predecessors. As a merger is necessarily an agreed (by the boards) transaction, this is anyway likely as directors are not likely to agree to a merger that would deprive too many of the board of their jobs.

Unlike an acquisition, a merger is not likely to involve a payment of significant premiums to the shareholder of either predecessor company. This makes it less likely to destroy shareholder value. Like acquisitions, the synergies that provide the usual rationale for a merger may not actually happen, and integration is almost always difficult and costly.

Some mergers appear to be an attempt by directors to scale up sufficiently to deter acquisitions.

Mergers often require clearance from competition regulators. In some case they are blocked, or only allowed subject to conditions (such as the sale of particular businesses).