merger

A combination of two or more businesses on a relatively equal footing that results in the creation of a new reporting entity. The shareholders of the combining entities mutually share the risks and rewards of the new entity and no one party to the merger obtains control over another. Under Financial Reporting Standard 6, Acquisitions and Mergers, to qualify as a merger a combination must satisfy four criteria:

• no party is the acquirer or acquired;

• all parties to the combination participate in the management structure of the new entity;

• the combining entities are relatively equal in terms of size;

• the consideration received by the equity shareholders of each party consists primarily of equity shares in the combined entity, any other consideration received being relatively immaterial. Investment banks and other financial institution often have mergers and acquisitions (M&A) departments to provide financial and other forms of support for these activities. In the UK, approval of the Competition Commission may be required and the merger must be conducted on lines sanctioned by the City Code on Takeovers and Mergers. The recently issued International Financial Reporting Standard 3, Business Combinations, will have a major impact on accounting for mergers and acquisitions.