The Business Definitions of Mergers & Take Over

Mergers and takeovers are very similar.

Mergers and takeovers both result in two companies becoming one larger company. While they are similar in this respect, they differ in the processes that surround them.

Mergers

Mergers are equitable. That is, a merger is when two companies agree to combine for mutual benefit--they both bring an equal amount to the table, and there is no "winner." The process behind it also defines a merger--shareholders are not given cash, but rather have their stock in one of the old companies exchanged for stock in the new company.

Takeover

A takeover is when a large company literally takes over a smaller company by buying up its shares. This means that the smaller company simply disappears, and no new company is created. Shareholders are given cash for their stock instead of new stock in the new company, because there is no new company.

Effects

Both practices can benefit everyone involved, but there are also downsides. For example, in a merger a company can achieve economies of scale, thus increasing profits--but also reducing jobs through increased efficiency. Majority shareholders in a takeover can find themselves very rich, but minority shareholders can find themselves suddenly transformed from entrepreneurs to employees.

References

• Investopedia: Merger Definition
• Investopedia: Takeover Definition
• Investopedia: What is the Difference Between a Merger and a Takeover?