Difference Between Merger and Takeover

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10 years ago

Merger vs Takeover

Difference between merger and takeover is that merger is an integration between two or more firms in order to expand the business operations while takeover means the acquiring of a company in order to increase the market share of the business. Both of these are similar corporate actions taken for the development of the companies and to increase the shareholder value over a long term. This article presents the definitions and descriptions of the two concepts and highlights the difference between merger and takeover.

What is Merger?

Merger is the combination of two or more companies into a single corporate entity that often takes on a new name. Mergers enable the companies to share the resources and ultimately to increase the level of their strength. In some instances, mergers take place in order to expand the business operations towards a different region. Especially when entering into a new market, it is safer and less risky to engage in business operations through merging with an already established company there.

There are many advantages that the companies gain through mergers such as an increase in the economies of scale, increase in the sales revenue and market share in the industry, increase in tax efficiency and broadened diversification. Further, mergers reduce the cost, increase the profits and increase the shareholder’s value in both merged companies.

There are different types of mergers that are practised by the companies as follows.

• Horizontal Merger

This type of mergers exists between two companies who involve in the same industry and it reduces the level of competition within the industry. e.g.: Merger between Coca Cola and Pepsi Companies.

• Vertical Mergers

These mergers are between companies in different industries. In this form, the merged companies decide to combine all the operations and production under one shelter. It encourages the companies to make the cross business strategic fit between the companies.

What is a Takeover?

Takeover or acquisition is a combination in which one firm, the acquirer, purchases and absorbs the operation of another firm , the acquired.Usually in a takeover, a larger company is acquiring a smaller company.The acquisition takes place with the motive of increasing the market share and to increase the level of company performance with the acquired resources to the company .

In an acquisition, the acquiring firm, usually, offers a cash price per share to the shareholders of the target firm. Whatever method is used, the purchasing company essentially finances the purchase of the target company, buying it outright for its shareholders. An example of an acquisition is the purchase of Pixar Animation Studio by Walt Disney Corporation in 2006.

What is the difference between Merger and Takeover?

• Both mergers and takeovers are two types of corporate strategies use by the organizations to develop the current performance of their companies.

• Mergers are primarily practised by the companies to reduce the risk of entering into a new market place.

• Takeover is a strategy used to expand the market share of the company and most often large companies acquire small companies.