A BEECHMONT CREST ONLINE GUIDE
MERGERS & ACQUISITIONS
What is a merger? What kinds of mergers are possible?
Statutory Merger
A statutory merger is a combination of two corporations, in which one of them ceases to exist. If rendered as an equation, a statutory merger might be expressed like this:
Company X + Company Y = Company X
An example would be Hewlett-Packard’s acquisition of Digital Equipment Corporation (DEC). As of 2006, DEC’s products lines have been sold under the HP name. As a distinct entity, DEC has ceased to exist.
Another example of a statutory merger is software maker Adobe Systems’ acquisition of Macromedia (another software company). Macromedia’s products are now sold from Adobe’s website. At the time of this writing, Adobe is still in the process of merging them with its own software suites.
Subsidiary Merger
A subsidiary merger occurs when the target company (the company that is purchased) becomes a subsidiary of the acquiring company. If Company X purchases Company Y, then we will have:
Company X + Company Y = (Company X + Company Y)
To the public, Company Y will maintain its former appearance; but it will be owned and controlled by Company X.
Consolidation
A consolidation is a form of merger in which two companies join to form a new corporate entity:
Company X + Company Y = Company Z
A consolidation often means a new name, and a new public identity. Consolidations, therefore, usually involve companies in the same line of business.
Is it a merger or a consolidation?
The terms merger and consolidation are sometimes used interchangeably. As a general rule of thumb, a merger describes the acquisition of a smaller company by a larger one. If the union is between two corporations of more or less equal size, then the term consolidation is probably applicable.
Textbook examples are sometimes blurred in the real world. For example, Company X may outright acquire company Y, and rename itself company Z to express the new organizational capabilities that result from the merger.