What Is a Merger? A merger is a voluntary legal agreement executed between two different companies to unite them into a new entity.

Mergers are related to, but distinct from, acquisitions. While a merger is a combination of two businesses resulting in a new entity, in an acquisition, one company purchases all shares of another company outright, gaining control of the latter firm and absorbing its operations.

All stock. Shareholders of the merging company are compensated with shares in the new company corresponding to the value of their old, pre-merger shares.

All cash. One of the companies purchases the majority of the other company’s outstanding share float with cash. That company will either become a subsidiary or be liquidated altogether.

Due diligence. Management will retain lawyers, tax professionals and investment bankers to scrutinize the company’s operations, balance sheet, assets, legal issues and other risks closely.

Mergers can be categorized by the strategic objectives of the companies. Different types of mergers fulfill different goals by company management. 

Exxon and Mobil merged in 1998 to create Exxon Mobil Corp. (ticker: XOM) in a deal valued at $81 billion. At the time, the two companies were already the first- and second-largest energy companies in the U.S., respectively.

H.J. Heinz Co. and Kraft Foods Group merged in 2015 to create Kraft Heinz Co. (KHC) in a $100 billion deal. Kraft Heinz is now one of the world’s largest consumer staples companies.