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Kalyan City is a fast emerging residential township in the Thane district of Maharashtra state, India. It is a central suburban town and resides 54 kms north-east of Mumbai. This blog regularly shares quality academic materials. Here we also document our unique experiences and vivid memories of life. Read our lucid informative articles to excel your understanding, knowledge and success.

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Articles published on Kalyan City Life blog are inspired from our work experience, field research, study of various good books and papers, seminars and consultations from subject scholars. Our unique collection of useful study notes is an outcome of a team effort and hard work of Gaurav Akrani, Prof. Mudit Katyani and Manoj Patil.

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What is Merger? Definition, Meaning and Example of Merger



square Definition of Merger


The definition of merger in general and in finance can be stated as follows:

In General,

"Merger is an absorption of one or more companies by a single existing company."

In Finance,

"Merger is an act or process of purchasing equity shares (ownership shares) of one or more companies by a single existing company."

definition meaning of merger

Image credits © Arrow International.


square Meaning of Merger


Before we understand, What is Merger? First, let's find out the simple meaning of an acquiring company and acquired companies.

  1. Acquiring company is a single existing company that purchases the majority of equity shares of one or more companies.
  2. Acquired companies are those companies that surrender the majority of their equity shares to an acquiring company.

Merger is a technique of business growth. It is not treated as a business combination.

Merger is done on a permanent basis. Generally, it is done between two companies. However, it can also be done among more than two companies.

During merger, an acquiring company and acquired companies come together to decide and execute a merger agreement between them.

After merger, acquiring company survives whereas acquired companies do not survive anymore, and they cease (stop) to exist.

Merger does not result in the formation of a new company. The management of acquiring company continues to lead (direct) the merger.


square Example of Merger


Consider the example of merger shown in the following diagram.

example of merger

In the above example, Company 'A' and Company 'B' are operating (existing) in the market. Company 'A' is an acquiring company, and Company 'B' is getting acquired by Company 'A'. In other words, Company 'B' gets merged with Company 'A'.

In this example of merger, Company 'A' will purchase the majority of equity shares (ownership shares) of Company 'B'. Company 'A' will take over the assets and liabilities of the Company 'B'. The shareholders of the Company 'B' will be given the shares of Company 'A'. The acquiring Company 'A' will continue to operate (function) by its erstwhile (former) name.

Some recent examples of well-known mergers are as follows:

  1. British Salt operating in UK merged with TATA Chemicals based in India.
  2. Zain Telecommunications operating in Africa merged with Bharti Airtel Limited based in India.
  3. Bank of Rajasthan operating in India merged with ICICI Bank (India).



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4 Comments :

  1. ramya latha said...

    yes its good and the information provided is helpful 2 the student like me. thank u.

  2. Salva Raguvanshi said...

    can we say that merger is an act of taking hands rather than shaking hands...??

  3. Gaurav Akrani said...

    In a legal sense, merger is an act of shaking hands.

    However, in a practical scenario, the ownership of an acquired company is discontinued after the process of merger.

  4. Anonymous said...

    Very useful and nicely explained in simple terms. Thanks a lot.

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