Merger

A merger is a transaction in which two companies combine, with the businesses continuing under a single surviving legal entity. Mergers are often framed as a "merger of equals", though one party is usually dominant in practice.

Legal forms

The legal mechanics vary by jurisdiction, but several structures are common in the United States:

• Statutory (direct) merger — the target merges directly into the acquirer; the target dissolves and the acquirer assumes its assets and liabilities by operation of law.
• Consolidation — both companies dissolve and combine into a brand-new entity.
• Subsidiary (triangular) merger — the acquirer uses a subsidiary to absorb the target. In a forward triangular merger the target merges into the subsidiary; in a reverse triangular merger the subsidiary merges into the target, leaving the target as a surviving subsidiary of the acquirer.

The reverse triangular merger is one of the most frequently used structures for acquiring a company because the target survives, so its contracts, licences and permits generally remain in place without needing individual consents.

Approval

Mergers normally require approval by the boards of both companies and, in most cases, a vote of the target's shareholders (and sometimes the acquirer's, if it is issuing a large amount of stock). Large mergers also require regulatory clearance.

Relationship to acquisitions

The line between a merger and an acquisition is partly one of framing. Economically, when one firm clearly takes control of another, the deal is an acquisition regardless of how it is described publicly. The label "merger" is sometimes preferred for its more collaborative connotation. See mergers and acquisitions for the broader field.