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INDEX
Definition of Merger Types of Merger Definition of Acquisition Difference between Merger & Acquisition Impact Advantages Disadvantages Merger & Acquisition in Banking Sector Motives Future in Banking Sector Conclusion
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MERGER
Definition: In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place.
EXAMPLE
GLAXO WELLCOME: Originally it was a baby food manufacturer company. It process local milk into baby food. SMITH KLINE BEECHAM: It is a pharmaceutical company. Founded in 2000 due to merger of GLAXO WELLCOME & SMITH KLINE BEECHAM It is also known as GSK. It is a public limited company.
TYPES OF MERGERS
Horizontal merger- Two companies that are in direct competition and sharethe same product lines and markets. For example, combining of two book publishers or two luggage manufacturing companies to gaindominantmarketshare Vertical merger- Itisacombinationoftwoormorefirms involvedindifferentstagesofproductionordistribution of the same product. For example, joining of a TV manufacturing(assembling)companyandaTVmarketing company or joining of a spinning company and a weavingcompany.
Market-extension merger -Two companies that sell the sameproductsindifferentmarkets. Product-extension merger - Two companies selling differentbutrelatedproductsinthesamemarket. Conglomeration- Two companies that have no common business areas For example, merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investmentandadvertisingagencies.L&TandVoltasLtd areexamplesofsuchmergers.
ACQUISITIONS
Definition: When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.
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MERGERS
In the case of a merger, two firms together form a new company. After the merger, the separately ownedcompaniesbecomejointly owned and obtain a new single identity. Mergers take place between two companies of more or less same size.Inthesecases,theprocessis calledMergerofEquals. When two firms merge, stocks of both are surrendered and new stocks in the name of new companyareissued.
ACQUISITIONS
However,withacquisition,onefirm takes over another and establishesitspowerasthesingle owner. Therelativelylesspowerful,smaller firm loses its existence, and the firm taking over, runs the whole businesswithitsownidentity. Unlike the merger, stocks of the acquired firm are not surrendered, but bought by the public prior to the acquisition, and continue to be traded in the stock market.
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Mergersandacquisitionsinbankingsector have become familiar in the majority of allthecountriesintheworld. A large number of international and domestic banks all over the world are engaged in merger and acquisition activities. Theprincipalobjectivesbehindthemergers and acquisitions in the banking sector is to reap the benefits of economies of scale. Mergersandacquisitionsinbankingsector areformsofhorizontalmerger.
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With the help of mergers and acquisitions, the banks can achieve significant growth in their operations and minimizetheirexpensestoaconsiderableextent. Importantadvantagebehindthiskindofmergeristhatin this process, competition is reduced because merger eliminatescompetitorsfromthebankingindustry.
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Conclusion
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THANK YOU
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