INTRODUCTION Merger and acquisition is a tool used by companies for the purpose of expandingtheir operations often aiming at an increase of their long term profitability. Mergersand acquisitions have gained importance in recent times. Business consolidation bylarge industrial houses , consolidations of business by multinational operations inIndia, increasing competition against imports have all combined to spur merger andacquisition activities in India.

In an increasingly globalize world, mergers and acquisitions are assuming more andmore significance, with many companies viewing consolidation as an efficient andeffective growth strategy.

One plus one makes three, this equation is the special alchemy of a merger or anacquisition. The key principle behind buying a company is to create shareholdervalue over and above that of the sum of two companies. Two companies togetherare more valuable than two separate companies- that is the reasoning behindmerger and acquisition.

 This rationale is particularly alluring to companies when times are tough. Strongcompany will act to buy other company to create a more competitive, costefficiency company. The company will come together hoping to gain a greatermarket share to achieve greater efficiency. Because of these potential benefitstarget companies will often agreed to be purchased when they know they cannotsurvive alone.

Mergers and acquisitions have become a major force in the financial and economicenvironment all over the world.

MERGERS

Mergers can be defined as a process, which involves a transaction that combinestwo firms into one new firm. In this case both the combining companies aredissolved and assets and liabilities of both the combining companies are transferredto a newly created company.

 Types of merger 

1. Horizontal Merger When two or more companies dealing in same product or service join together it isknown as horizontal merger. The idea behind this type of merger is to avoidcompetitions between the units, for example – two manufacturers of same type of 

 

cloth,two transport companies operating on the same route-the mergers in all thesecases will be horizontal merger.

Besides avoiding competition there economies of scale, marketingeconomies,elimination of duplication of facilities, increase in market share etc.

2. Vertical Merger 

In this case, two or more companies dealing in the same product but atdifferent stages may join to carry out the whole process itself. For example a railwaycompany may join with coal mining for carrying coal to different industrial center. The idea behind this type of merger is to take up two different stage of work toensure speedy production or quick production.

3. Conglomerate Merger. 

When two companies dealing in totally different activities join hands itwill be a case of conglomerate merger. The merging concerns are neitherhorizontally nor vertically related to each other. For example a manufacturingcompany may merge with a vegetable oil mill. There may be some commonfeatures in merging companies, such as distribution channels, technology etc. Thistype of merger is undertaken to diversify the activities and to diversify the risks.

ACQUISITION AND TAKEOVER

It is purchase of one firm by another. In this case only one of the combiningcompanies survive and the other loses its separate identity.  The assets and liabilities of the acquired company are transferred to the acquiringcompany. The acquired company is dissolved and the acquiring company continuesas usual.  The control over another company can be acquired through either a 'friendlytakeover' or through 'forced' or unwilling acquisition.

When a company takes over the control of another company through mutualagreement, it is called acquisition or friendly takeover.On the hand if the control isacquired through unwilling acquisition i.e. when the takeover is opposed by thetarget company it is known as hostile takeover.