Merger
The combination of two companies into a single entity, with one absorbing the other or both forming a new company.
How it is identified
Test: the transferor company's assets, liabilities and shareholders move into the transferee company under an approved scheme
Unit
qualitative
In depth
In a merger the shareholders of the absorbed company receive shares of the surviving one at a stated swap ratio, so their exposure changes rather than ending. Indian mergers proceed through a scheme of arrangement requiring approval from shareholders, creditors, the National Company Law Tribunal and, where relevant, the Competition Commission — a process that routinely takes twelve to eighteen months. The announced swap ratio determines who gains, and it is set by valuers whose report is available in the scheme documents. Most academic studies find that acquirers on average destroy value while target shareholders gain, which is the pattern worth remembering when a deal is announced.
Worked example
A swap ratio of 3:5 gives a target shareholder 3 acquirer shares for every 5 held. Holding 1,000 target shares yields 600 acquirer shares, whose value depends on the acquirer's price rather than the target's.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Merger” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.