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Types of Merger

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.

  1. 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.
  2. 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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