Definition of a Company Merger
In laymen terms, a company merger occurs when two companies combine to become one company.
Company A + Company B = Company AB
Generally, when two companies merge, the larger of the two companies takes over the smaller company and that small company dissolves into the larger one. An example would be the Merger between United Airlines and Continental Airlines. When these companies merged they became one and the Continental Brand was retired. It does not mean that Continental airplanes and buildings were sold off and the doors closed. It simply means that everything Continental had their name on became part of United and was marketed as being United.
There are 3 Main Types of Mergers
There are many complex aspects to a Merger that can affect the rights of the parties involved. Those aspects also help define what type of Merger it will be and can help a business see the possible benefits to be gained from a merger.
Merger Type 1: Horizontal Merger
This type of merger is between two companies that are in the same industry and offer the same product/service. The reason for the companies merging is most likely to gain more market share, lower their costs, and create new business opportunities. The example mentioned above with United and Continental Airlines is a good example of this.
Merger Type 2: Vertical Merger
This type of merger involves two companies that are in the same industry but offer two different services. In other words, they are two companies that do not compete with each other but still are in the same industry. One company is generally the supplier of the other company. So the supplier is being bought by the larger company. The best example would be if a satellite TV provider bought out the company supplying/manufacturing the satellites the company for their service. The main goal of this type of merger is to reduce operating costs.
Merger Type 3: Conglomerate Merger
This type of merger involves two companies that have nothing in common and are in different industries. An example of a conglomerate merger would be a shoe company buying a sports drink company. The reason the shoe company would do this is because they want to increase their capital investments and make more money outside of their man business.
If your company is thinking about merging with another company, contact one of our attorneys in our business services area. Our Attorneys are highly trained and specialized in this area of law. We can provide advice as to the various tax, employment law, and contract issues that can arise with a merger. We will work with you to help make the merger happen as easy and painlessly as possible.