When two or more companies consolidate by exchanging common stock, and the resulting single company replaces the old companies, the consolidation is described as a merger.
The shareholders of the old companies receive prorated shares in the new company. A merger is typically a tax-free transaction, meaning that shareholders owe no capital gains or lost taxes on the stock that is being exchanged.
A merger is different from an acquisition, in which one company purchases, or takes over, the assets of another. The acquiring company continues to function and the acquired company ceases to exist. Shareholders of the acquired company receive shares in the new company in exchange for their old shares.
Despite their differences, mergers and acquisitions are invariably linked, often simply described as M&As.
- Browse Related Terms: 10-k, 8-k, Acquisition, Audit committee, Closely held, Conglomerate, Depositary bank, Diluted earnings per share, Insider trading, Merger, Privatization, Retained earnings, Reverse stock split, Sarbanes-Oxley Act of 2002, Spin-off, Stock split
Also listed in: