Write about Mergers & Acquisition percentage rules

FinanceFinance ManagementBanking & Finance

The term merger is nothing but combining the two or more companies to form a big unit and term acquisition is nothing but takeover of one company from another company. The main aim is to reduce operation costs, wealth maximizations. Mergers and acquisitions play an important role in the corporate finance world.

Types of Mergers

Merges are classified into following types based on economic perspective and business combinations −

  • Horizontal merger
  • Vertical merger
  • Conglomerate merger

Mergers are also classified based on legal perspective into the following −

  • Statutory merger
  • Merger of equals
  • Short form merger
  • Subsidiary merger

Rights

Based on the percentage of shares held by the parent company, they will have certain rights owned in the target company. These rights are explained below −

  • If the parent company holds 100% stake in the target company then the parent will have complete control over the target company. This means they can change the ownership, control the board, change board members; they can remove any number of employees from Target Company etc.
  • If the parent company holds 80% of stake in the target company, the parent company will have a threshold for tax free deals.
  • If the parent company has % + 1 share in the target company, the parent company has a minor interest in the target company. This means they have very less power in the newly formed company and they have to take collective decisions instead of monopoly decisions.
  • If the company has a 15%-25% stake in another company, the company having 15%-25% will have effective control in the proxy battle. This means they can act as key players in taking decisions, change in board etc. that means if any other partner wants to go with a decision, he will take help from 15%-25% players and can do whatever he wants in close battles.
  • If a company having less than 5% stake hold, they will notify purchasers intent.

The percentage rules with regards to the merger and acquisition are as follows −

PercentageDescription
100%It states that the company has complete control.
80%It states that the company is a threshold for tax free deals.
50% + 1 shareIt states that the company had control with minority interest.
15% - 25%It states that the company has effective control (in proxy battle).
5%It is notified of the purchaser's intent.
raja
Published on 17-Jul-2021 16:10:26
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