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Consolidation
1. One plus one makes three: this equation is the special alchemy of a
merger or an acquisition. The key principle behind buying a
company is to create shareholder value over and above that of the
sum of the two companies. Two companies together are more
valuable than two separate companies - at least, that's the
reasoning behind M&A with a desire to have an edge over
competitors.
2. Mergers, acquisitions, takeovers, and amalgamations have become
essential components of business restructuring. The process brings
separate companies together to form a larger enterprise and
increase economies of scale.
3. Absorption is a condition in which two or more companies come
together to perform operations in an existing company whereas in
case of consolidation, companies come together and create a
completely new entity for their combined operations.
Merger
Merger is defined as combination of two or more companies into a
single company where one survives and the other lose their
corporate existence. The survivor acquires all the assets as well as
liabilities of the merged company or companies. Generally, the
surviving company is the buyer, which retains its identity, and the
extinguished company is the seller.
Forms of Integration
Statutory merger
The acquiring company acquires all of the targets assets and
liabilities. As a result, the target company ceases to exist as a
separate entity.
Subsidiary merger
The target company becomes a subsidiary of the purchaser.
Consolidation
Both companies cease to exist in their prior form, and they come
together to form a completely new company.
Acquisitions
1. A corporate action in which a company buys most, if not all, of the
target companys ownership stakes in order to assume control of
the target firm.
2. Acquisitions are often paid in cash, the acquiring companys stock
or a combination of both.