5 things you should know about mergers

1. A merger is a voluntary agreement which combines two or more companies into one.

2. After a merger, shares of the new company are distributed to existing shareholders of all the original companies.

3. Mergers are done either to expand the products offered and/or reach new markets and/or to gain market share.


4. The aim is to enhance the companies’ profitability through synergies, economies of scale and operational efficiency.

5. When two businesses in the same industry combine into one it is called a horizontal merger. When two businesses in the same value chain or supply chain merge it is called a vertical merger. The proposed mergers of the PSU banks is an example of horizontal mergers.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)