A corporate merger is a form of business consolidation where two companies combine their assets and resources to create a new company. The corporations adopting this development strategy are generally equal in size, targeted audience, and scale of business operations. The directors and top executives of these enterprises feel their organizations can run profitably together than on their own. The companies agree to enter into a business merger with similar corporations to:
- Capture and dominate a large segment of the market,
- Diversify their product range,
- Acquire new technologies, assets, or introduce innovative business processes,
- Adopt business models to revamp their supply chains, and
- Streamline support operations to increase internal efficiency and reduce overhead costs.
Steven Rindner is a renowned business executive from America who specializes in corporate development. His expertise lies in helping companies in the technology, real estate, media, and healthcare sectors grow. Currently, he occupies a vital post in the Belgium-owned pharmaceutical company – Besins Healthcare International.
He says a business merger occurs when two companies find it beneficial to combine their business operations. The objective of both these enterprises is to increase the market value of their new company, which results from the consolidation. This will give them an incentive to agree to the new arrangement. It even ensures their shareholders see a significant rise in the price of their shareholdings in the new company.
In a business merger, each of the companies accurately evaluates the current market value of their organizations. Then, the directors of both these enterprises conduct board room negotiations to arrive at a mutually acceptable purchase consideration. They even agree to an exchange rate for the share transfer resulting from the consolidation. After this, one of the companies buys the common stock from the shareholders from the other. In return, this enterprise offers these investors:
- Its shares or bonds whose value is equal to their former shareholdings, and
- Cash for any difference in the share price valuations.
Factors to consider
Companies need to consider the following factors when entering into a lucrative business merger with their competitors:
- The time and cost it takes to complete necessary formalities to close the process,
- The impact the business arrangement will have on their enterprises’ corporate culture,
- The effect the merger will have on the enterprises’ investors, customers, and other stakeholders,
- Can the parties to the merger walk away if the negotiations are not conducive to their expectations?
- The legal and tax implications of agreeing to the merger for enterprises, and
- How will the corporations evaluate their respective intellectual property rights?
Steven Rindner concludes by saying a business merger allows companies to gain a competitive edge in the market over time over their peers. The consolidation enables them to expand their markets by streamlining their supply chains, use new technologies and innovative business models.
As a result, the corporations notice a reduction in their overhead costs and an increase in profitability. However, they need to ensure the arrangement is in the best interests of their stakeholders. If the need arises, the companies should hire experienced business and legal experts to oversee the process for better results.