• A merger is a corporate strategy of combining different companies into a single company in

order to enhance the financial and operational strengths of both organizations.

• How it works/Example:
• A merger usually involves combining two companies into a single larger company. The
combination of the two companies involves a transfer of ownership, either through a stock swap
or a cash payment between the two companies. In practice, both companies surrender their stock
and issue new stock as a new company.
• There are several types of mergers. For example, horizontal mergers may happen between
two companies in the same industry, such as banks or steel companies. Vertical mergers occur
between two companies in the same industry value chain, such as a supplier or distributor or
manufacturer. Mergers between two companies in related, but not the same industry are called
concentric mergers. These mergers can use the same technologies or skilled workforce to work in
both industry segments, such as banking and leasing. Finally, conglomerate mergers occur
between two diversified companies that may share management to improve economies of scale
for both companies.
• A merger sometimes involves new branding or identity of the merged companies. Otherwise, a
merger may lead to a combination of the names of the two companies, capitalizing on the
brand identity of both companies.
• Steps in a Merger
• There are three major steps in a merger transaction: planning, resolution,
implementation.
• 1. Planning, which is the most complex part of the merger process, entails
the analysis, the action plan, and the negotiations between the parties involved.
The planning stage may last any length of time, but once it is complete, the
merger process is well on the way.
• More in detail, the planning stage also includes:
• signing of the letter of intent which starts off the negotiations;
• the appointing of advisors who play the role of consultants, examining the
strengths, weaknesses, opportunities, and threats of the merger;
• detailing the timetable (deadline), conditions (share exchange ratio), and type
of transaction (merger by integration or through the formation of a new
company);
• expert report on the consistency of the share exchange ratio, for all of the
companies involved.
• 2. The resolution is simply management's approval first, then
by the shareholders involved in the merger plan.
• The resolution stage also includes:
• the Board of Directors calling an extraordinary shareholders’ meeting
whose item on the agenda is the merger proposal;
• the extraordinary shareholders’ meeting being called to pass a
resolution on the item on the agenda;
• any opposition to the merger by creditors and bondholders within 60
days of the resolution;
• green light from the Italian Antitrust Authority, that evaluates the
impact of the merger and imposes any obligations as a prerequisite
for approving the merger.
• 3. Implementation is the final stage of the merger process,
including enrolment of the merger deed in the Company Register.

• Normally medium-sized/big mergers require one year from the start-

up of negotiations to the closing of the transaction. This is because, in
addition to the time needed technically, there are problems relating to
the share exchange ratio between the merging companies which is
rarely accepted by the parties without drawn-out negotiations.

• During the merger process, share prices will adjust to the share
exchange ratio. On the effective date of the merger, financial
intermediaries will enter the new shares with the new quantities in the
dossiers. The shareholders may trade without constraint the new shares
and benefit from all rights (dividends, voting rights).