A merger is the amalgamation of two or more companies into an entirely new entity by combining the assets and liabilities of both companies into one.
This differs from a traditional merger in that neither of the two companies involved survives as a legal entity.
The transferring company is taken over by a stronger receiving company, resulting in an organization with a stronger client base and more assets.
Consolidation can help increase cash resources, eliminate competition and save companies on taxes.
“But it can lead to a monopoly if too much competition is cut, the workforce is reduced, and the new venture’s debt burden is increased.
As a result of the spin-off, the parent company sells a portion of its shares in its subsidiary to the public through an initial public offering (IPO), effectively turning the subsidiary into a stand-alone company.