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Forms and names for the association of companies

Basic knowledge: the various forms and names for the merger of companies briefly explained

When it comes to the merger of companies, there are not only many different forms, but also numerous technical terms that describe the respective variant.

In terms of basic knowledge, here is an overview that briefly explains the various forms and names for the merger of companies:

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Takeover, acquisition and takeover

A takeover or a company acquisition is when a company buys another company. The technical terms for such a scenario are called acquisition or takeover. In most cases a larger company will take over a smaller one, but there are also times when a company is bought out by a company of the same size or even a smaller one.

The form in which the takeover is implemented depends on the legal form and the ownership structure. If the company is privately owned, it is sufficient for the buyer and seller to come to an agreement and conclude the sales contract in front of a notary.

If the company is listed on the stock exchange, the takeover can take place, among other things, by the buyer buying or swapping blocks of shares from major shareholders or gradually buying up shares in free float. In general, however, there are strict rules that apply to listed companies. For example, major shareholders must reveal themselves when a certain percentage threshold is exceeded.

Minority shareholders, on the other hand, must receive a compensation offer if a new owner takes over the management of the company, but they can also be forced out of the company. The latter is known as a squeeze out. A hostile takeover, a so-called hostile takeover, occurs when the company management or the owner did not want a takeover.

Fusion and merger

If two or more companies merge to form one company, it is referred to as a merger. The German word for fusion is fusion, the English technical term is merger. From a legal and tax point of view, a merger is more complicated than a takeover, as the consequences vary depending on how it is implemented.

It makes a difference whether one company is formally integrated into the other, whether the companies merge to form an existing company or whether the two companies form a newly founded company after the merger. Compared to a takeover, however, a merger has two decisive advantages. The first advantage is that less capital is required for a merger, because the integration generates costs, but purchase prices do not have to be paid.

Possible differences in value can be compensated for, for example, by means of a corresponding exchange ratio for the shares. The second benefit is the psychological component. Unlike a takeover, none of the companies feels or acts like the loser that another company has swallowed. Approval by the antitrust authorities is required for both larger takeovers and mergers, depending on the constellation at national or European level. The antitrust authorities often only approve a takeover or merger if strategically very attractive parts of the company or subsidiaries are sold at the same time.

This is intended to prevent the new company from gaining a dominant position in the market, but for the companies involved this can mean the emergence of a different entity than intended.

For the employees, in turn, this means that their division may not be integrated into the new company, but sold. In Germany, takeovers and mergers are usually a transfer of business in accordance with Section 613a of the German Civil Code (BGB). This means that workers are largely vested rights for at least one year.

Reasons for the merger of companies

If a company takes over another company without integration, this takeover serves as a pure capital investment or a so-called diversification is intended. Diversification means that a company enters a business field in this way that has little or nothing to do with its previous field of activity. Such diversifications were in vogue for a while, but then they lost their appeal because it became clear that the capital market was not very interested in shares in conglomerates.

One reason for this is that an investor does not need a conglomerate, but can diversify himself by simply buying shares in different companies. This in turn allows the investor to design his own portfolio and does not have to invest in a pre-mixed package. In addition, the argument that conglomerates are less prone to price fluctuations did not convince the capital market.

This is because stable prices not only mean that there is no risk of major losses, but also that prices do not move significantly upwards. In addition to the sometimes assumed pursuit of large profits and power, there are good reasons from a business point of view that speak in favor of a company merger. One of the main reasons is certainly that the size of the company has a decisive influence on success in many fields of activity.

There are numerous industries that are dominated by two or three big players because they can exploit their cost advantages from developing new products through purchasing and production to sales. Of course, a company can place its hopes in natural growth and try to gain market share. However, this would not only take a lot of time and stamina, but ultimately can only be achieved through lower prices or higher quality products.

Since it is precisely here that the market giants usually have a clear advantage, a company that is in the middle of a mature market will probably only be able to advance to the top positions if it merges with another company or can be taken over. The same applies if a company wants to gain a foothold in foreign markets, because here, too, a merger or takeover is often the more promising solution than trying to assert itself in a protracted cutthroat competition and a possible price war.

A takeover or merger is only rewarded in terms of market position, profits and treatment by the capital markets if there are synergy effects. These in turn require a quick and smooth integration, complete or partial, and this task falls within the area of ​​responsibility of post-merger integration, a special discipline of change management.

You can find everything you need to know about company takeovers, M&A and corporate investments at https://www.investoren-beteiligung.de

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Topic: Forms and names for the amalgamation of companies

Owner at Artdefects Media Verlag
Publishing house owner Christian Gülcan (Artdefects Media Verlag), marketing expert in online marketing, SEO, SEA, social media, print media and marketing of companies since 2006.
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