Merger and Trust
A merger is the combination of two or more companies into a single entity. All assets, rights, obligations and contracts pass to the new (or acquiring) company, and at least one of the previous companies ceases to exist legally.
Two forms of merger
- Merger by absorption: one company absorbs another
- Merger by formation: several companies combine into a brand-new entity
Effect on independence
- The merging companies lose both legal and economic independence
- They are fully absorbed into the new or acquiring company
Motives
- Save costs and increase efficiency
- Grow market share
- Pool know-how
- Strengthen financial power
- Enter new markets
Advantages and disadvantages
| Advantages | Disadvantages |
|---|---|
| Stronger market position | Loss of independence |
| Cost savings | Integration problems |
| Pooled know-how | High costs (legal, restructuring) |
| Greater financial power | Possible layoffs |
| Access to new markets | Expected synergies may not materialise |
Effects on environment
| Affected | Possible effects |
|---|---|
| Other companies | Stronger competition, displacement, pressure on smaller firms |
| Consumers | Possible price increases, less choice, sometimes better products via efficiency |
| Economy as whole | Higher productivity, but concentration of market power and risk of monopolies |
Trust, the result of a merger
While a merger is the process, a trust is the result: several firms are fully combined under unified management and give up their independence, so that they act, economically, as a single company.
Distinction from similar forms
- Cartel: companies stay independent and merely coordinate behaviour
- Corporate group: companies stay legally independent but are under common control
- Trust: companies merge completely and lose their independence
Examples
- Daimler-Benz and Chrysler (1998), merged into DaimlerChrysler
- Disney and Pixar (2006), Disney fully acquired Pixar