What is a merger?

A merger is defined as the combination of two companies into a single entity. This process typically occurs when two firms agree to unite their operations, resources, and management, transforming them into one corporation. The motivation behind a merger often includes achieving economies of scale, enhancing market reach, or consolidating resources to boost competitiveness.

In practice, a merger can involve various operational aspects, including aligning corporate strategies, sharing knowledge and technologies, and optimizing efficiencies. The result is generally a more robust organization that can leverage the strengths of both original entities while potentially creating more value for shareholders.

Understanding this definition is crucial in financial management, as mergers can significantly impact market share, revenue growth, and overall corporate strategy. In contrast, the other options describe different business activities—such as the separation of a company into subsidiaries or the acquisition of assets—rather than the creation of a new consolidated organization which is the essence of a merger.