What is the Difference Between Merger and Takeover?

The main difference between a merger and a takeover (or acquisition) lies in the way the two companies involved in the process decide to combine.

In a merger:

• Two companies of similar size and status decide to combine their operations and form a new entity.
• The decision to merge is mutual, with both companies agreeing to join forces to achieve synergies, economies of scale, or other strategic objectives.
• A new name is chosen for the merged entity, and new shares are issued to existing shareholders of both companies.
• Mergers are often portrayed as a mutually beneficial agreement between the merging entities.

In a takeover or acquisition:

• A larger company purchases a smaller company, where the smaller company ceases to exist, and all its operations and assets are acquired by the larger company.
• The decision to combine does not necessarily have to be mutual; a larger company can initiate a hostile takeover of a smaller firm.
• The acquired company often uses the parent company's name.
• The larger company gains control over the target company by obtaining its assets, liabilities, and equity interests.

Both mergers and acquisitions aim to improve company performance and shareholder value by combining two firms and achieving operational advantages, such as boosted economies of scale, greater sales revenue, and market share.

Comparative Table: Merger vs Takeover

Here is a table comparing the differences between a merger and a takeover (or acquisition):

Mergers involve two or more companies with similar size and scale operations, which combine to form a new entity. The decision to merge is always mutual, and the new company issues new shares and chooses a new name. On the other hand, takeovers involve a larger company purchasing a smaller one, sometimes against the target company's wishes. The acquiring company may or may not issue new shares, and the target company often uses the parent company's name.