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When businesses merge, management has several options for
structuring the new or surviving business. One business might absorb another,
two brands might operate under a new corporation or both companies might shut
down to create a new business. Understanding the different scenarios that
result from mergers will help you decide if a merger is right for you.
Terminology
The terms “mergers”
and “acquisitions” refer to the combination of existing businesses, which can
occur under different scenarios. Under its most common definition, “merger”
refers to two businesses combining on a more equal footing than when one
company buys another. An acquisition occurs when one company purchases another,
making it subordinate. During an acquisition, a company that owns several
businesses might merge an acquisition into one of its existing businesses or
allow it to operate independently.
One Company Ceases to Exist
With some mergers, one company no longer
functions under its own name and management. The assets of the company are
absorbed into the surviving company. For example, say Bob starts a corporation
that runs his local Bob’s Burgers restaurants, operating two locations. He buys
another local corporation that operates Hank’s Burgers, which has two
locations. Bob closes the corporate offices of Hank’s and dissolves that
corporation. He takes its assets, which include the two Hank’s locations,
changes their names to Bob’s Burgers and operates his corporation with four
locations. Bob would eliminate redundant corporate functions, since he won’t
need two accountants, HR managers, marketing directors, office managers or IT
directors.
Both Brands Survive
With some mergers, the corporations merge,
but the locations and brands survive. For example, Bob’s Burgers might believe
that Hank’s Burgers has such a loyal following that it wants to continue to
operate the two Hank’s locations under that name. The companies would merge by
combining corporate functions but continuing to operate four locations with two
names. Bob would close Hank’s corporate offices and dissolve that corporation
but continue to operate a company called Hank’s Burgers. When large companies
merge and continue to operate separate brands, each one might have its own
administrative office, handling its own marketing, HR, IT and accounting. In
other instances, one office handles the corporate functions for both companies,
keeping separate financial records for each.
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