Knowledge Base

A merger is when two companies combine to form a single entity. An acquisition is when one company purchases another and takes control of it. Both are corporate actions that directly affect shareholders of the companies involved.

Merger

In a merger, shareholders of both companies typically receive shares of the newly formed or surviving entity. The ratio in which shares are exchanged is called the swap ratio : decided based on the valuation of both companies.

Acquisition

In an acquisition, the acquiring company buys a controlling stake in the target company. Shareholders of the target company may receive cash, shares of the acquiring company, or a combination of both depending on the deal structure.

Amalgamation

An amalgamation is similar to a merger – two or more companies combine into one. The difference is largely legal and structural. The end result for shareholders is similar : existing shares are exchanged for shares of the merged entity.

What happens to the target company’s stock?

Once a merger or acquisition is completed and approved, the target company’s shares are delisted from the exchange. Shareholders receive the agreed consideration shares, cash, or both in place of their original holding.