Merger

In a merger, two companies agree to join together, often on roughly equal terms. This differs from an acquisition, where one company clearly buys and takes control of another, although in practice the line between the two can be blurred, and many deals described as mergers are effectively acquisitions.

Mergers can be classified by the relationship between the companies. A horizontal merger combines competitors in the same industry. A vertical merger combines companies at different stages of the same supply chain, such as a manufacturer and a supplier. A conglomerate merger combines companies in unrelated businesses.

For example, two regional banks of similar size might merge to form a larger national bank, with shareholders of each receiving shares in the new combined bank.

Companies merge to achieve cost savings, increase market power, expand geographically, combine complementary strengths or improve their ability to compete. Mergers can also face challenges, particularly combining different corporate cultures, systems and management teams. Large mergers between competitors often require approval from competition authorities, which may block them or require the companies to sell parts of their businesses.