Terms of merger, consolidation, and acquisition are generally known in the Corporate world. Basically, it is used to gain growth, provide strong structure, entity, product diversification, and increase the market share. Most often these three terms are confusing. This article will summarize what are the difference of merger, consolidation, and acquisition:
- Merger
The definition is when two companies come together to form a combined company (Company X + Company Y =Company X). The combination of two companies involves a transfer of ownership, either by stock swap or a cash payment between the two companies.
Sometimes a merger leads to a new branding or identity. For example is between Coca-Cola and Pepsi beverage division. The merger creates a new, larger corporate with larger market share.
- Consolidation
Refers to the amalgamation of several smaller corporates into one larger corporate. The difference between a consolidation and a merger is the number of businesses involved and the business size prior to forming the new one (Company X +Company Y = Company Z).
For example: Target Corp, in 2015 sold the pharmacy portion of its business to a major drugstore chain, CVS Health. CVS Health rebrand it by changing the name into MinuteClinic.
3. Acquisition
The acquisition is known as the business strategy which one corporate takes the control of another one. This is conducted either by the purchase of the assets of the company or by acquiring ownership.
Example: of taxation in 2006 acquisition of Corus Group by Tata Steel.
Merger, consolidation, and acquisition are part of the corporate strategy to expand their businesses. This strategy will gain thof taxation synergy, financial benefit, and increase the competitive advantage.
Hope that this article can be useful and clear enough to find out the differences among these three definition. So, if you must choose, which business strategy will you choose 🙂
