Investing term

What is Merger?

Two companies legally combine into one new entity, usually with shareholders of both receiving stock in the combined firm.

A merger is when two companies legally combine into a single new entity, typically with shareholders of both receiving stock in the combined firm. Unlike a straight acquisition where one buys the other, a merger is framed as a marriage of equals. They promise cost savings and scale, though in practice many fail to deliver the value their architects predicted.

For example

Two mid-size companies merge into one larger firm, and shareholders of each swap their old shares for stock in the newly combined business.

Merger is taught hands-on in Stage 8 — Corporate Actions: What Lands in Your Account.

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Related terms

AcquisitionOne company buys another. The bought company's shares are converted to cash, acquirer stock, or a mix at the closing price.Carve-outA parent company sells part of a subsidiary in an IPO, keeping a stake.Corporate actionAny event initiated by a company that changes its securities or distributes value to holders.Cost basisWhat you originally paid for a holding, used to calculate gains and losses when you eventually sell.
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