Business Litigation Lawyer

By definition, a corporate merger occurs when two companies combine to form what may or may not become a new corporation with one combined stock. Other times, one company buys the other company’s stock, assets or both. As a business litigation lawyer from Eric Siegel Law explains, companies merge for a variety of reasons, including the following:

• To expand their market share
• To diversify their product line
• To reduce their competition
• To increase their profits
• To reduce their risk

Which Stockholders Get What

The amount of money or new stock a shareholder of a merging company will get depends on several factors, including the following:

• Which company is he or she a shareholder of?
• Is his or her company the buying company or the company being bought?
• Will the stock after the merger be that of the buying company or that of an entirely new entity?

If the merged company is a new one, stockholders in both of the existing companies seldom get an equal number of shares in the new company. Instead, they’ll likely get something less than a 1-for-1 trade. If one company is buying out the other company’s stock, stockholders of the company being bought likely will receive considerably less than a 1-for-1 stock trade with the purchasing company. 

Types of Mergers

Needless to say, stock swaps that occur as the result of a merger can be, and usually are, quite complicated. It’s important to remember that a merger requires a majority vote of both company’s stockholders. Mergers take one of the following five forms:

1. Conglomerate merger: two companies in different industries combine
2. Horizontal merger: two companies from the same industry, possibly competitors, combine
3. Vertical merger: two companies in different sectors of the same industry’s supply chain combine
4. Market extension merger: two companies with differing markets in the same industry combine
5. Product extension merger: two companies that sell similar, but not necessarily competing, products combine

Gigantic Corporate Mergers

Some of today’s largest companies are the result of mergers. For instance, America Online merged with Time Warner in 2000. The new company kept the Time Warner name, that is, until AT&T acquired it in 2018 after which it became WarnerMedia. Even that, however, wasn’t the end of its merger story. Just this year, AT&T announced its intention to spin off WarnerMedia and merge it with Discovery, Inc. under the new name of Warner Bros. Discovery.

Another gigantic corporate merger was that of Exxon and Mobil in 1999 that formed ExxonMobil. Still another was the merger of Disney and Fox in 2019. The resulting company owns more TV and movie rights than any other company in the history of the world.