Merger : A Legal Point Of View

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From a legal point of view, ‘merger’, is a process that leads two or more companies cease to be distinct. (Enterprise act 2002). In other words, companies agree to combine their businesses into one entity for economical, operational or any other reasons on a voluntarily basis. Technically, this involves a foundation of a new firm and its shares issue which substitutes all shares of the merged companies. A typical example of a merger can be the formation of ExxonMobil which appeared after the merger of Exxon and Mobil in 1999. However, some cases of merger, especially cross-border mergers, are costly to perform an actual consolidation of all assets and, therefore, they create a holding company for the purpose of owning shares in merged…show more content…
[SOURCE BLYAT] While terms of merger either acquisition are commonly used to define a wide range of transactions, in fact, they are all different according to specific conditions of each. Therefore, researches distinguish M&A activity according to its nature. Amit R. (1989) classifies three main types of mergers on a basis of target firm’s nature: anticipated bankruptcy of a target firm; exceptional performance or high liquidity of a target; and target firm being a remainder of a greater one. However, this generalised classification is not widely adopted by researchers which rather prefer to employ a conventional classification or, to be more precise, they classify and sub-classify M&A by their perspectives. From economic perspective, there are: horizontal mergers – a type of transaction, both parties in which can be treated as former competitors operated in the same market; vertical merger - a type of transaction recognized by buyer-seller relationship between acquirer and target firm; and conglomerate merger – where neither market similarity nor former relationships brings acquirer and target firms together, or, in other words, they may operate in completely different markets, geographical locations etc. (Gaughan 2007) From legal perspective, researchers define several types of M&A activities: short from a merger – a merger with a subsidiary of parenting
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