WHAT IS MERGER

MERGER occurs when two separate company merge with each other to become one common entity. Mergers require no cash to complete but they dilute each company,s individual power. They are done to gain market share, reduce the cost of operations expand to new territories, unite common products grow revenue and increase profits.

KINDS OF MERGER

Purchase mergers

This kind of merger occurs when one company purchases another company. The purchase is made with cash or through the issue of some kind of debt instrument. The sale is taxable, which attracts the acquiring companies, who enjoy the tax benefits. Acquired assets can be written up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company.1

Consolidation mergers

With this merger, a brand new company is formed, and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.1

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