A company merger occurs when two firms come together to form a new company with one combined stock. Although a merger is typically thought of as an equal split in which each side maintains 50% of the new company, that's not always the case. In some mergers, one of the original entities gets a larger percentage of ownership of the new company.
Why do companies merge?
Mergers are a great way for two companies with unique experience and expertise to come together and form one business that is more profitable than the two entities were on their own.
There are several reasons why two companies might want to merge. Sometimes, it is out of convenience, and other times, it is out of necessity. Regardless of the specifics, the goal of a merger is to take advantage of opportunities in the marketplace that benefit both businesses.
How does a company merger work?
A company merger occurs when two businesses with similar synergies decide that being one company together will yield more profits than being two separate entities. During a merger, the companies involved are likely to undergo quite a bit of restructuring in terms of corporate leadership and operations.
When a company merger happens, the two equal companies can convert their previous stocks into one new, combined company stock. First, they must decide what each company is worth, and then they split the ownership of the new company accordingly.