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NISM-Series-XV: Research Analyst · Corporate Actions

Mergers, Demergers and Acquisitions for NISM Series XV

Updated 11 October 2026 · Fact-checked

A merger combines companies into one. A demerger splits a business into separate companies. An acquisition or takeover means one company gains control of another. The share swap ratio tells you how many acquirer shares a target shareholder gets per target share. Calculate it from the agreed values per share.

Understand Mergers, Demergers and Acquisitions

Corporate restructuring means changing a company's structure, ownership or business mix. Mergers, demergers and acquisitions are the main forms. The exam tests definitions, types, swap ratios and what happens to shareholders.

A merger combines two or more companies into one. In an amalgamation by absorption, one company takes over another and the target disappears. In an amalgamation by consolidation, a new company is formed and the old ones disappear. In India, mergers are usually done through a scheme of arrangement approved by shareholders, creditors where needed, and the NCLT. Listed companies also need stock exchange and SEBI processes.

Mergers are classed by business relationship. A horizontal merger joins competitors in the same line of business. A vertical merger joins companies at different stages of one supply chain, such as a manufacturer and its supplier. A conglomerate merger joins companies in unrelated businesses. A concentric (related) merger joins companies in related but not identical businesses.

An acquisition or takeover is where the acquirer gains control of the target, often by buying shares. It can be friendly or hostile. A hostile bid goes against the target management's wishes. In a takeover the target may continue to exist as a separate company, unlike in an amalgamation. Listed company takeovers are governed by SEBI's takeover regulations, which include an open offer to public shareholders once specified triggers are crossed.

A demerger is the reverse of a merger. A business unit is separated into a new or existing company, and shareholders of the original company usually get shares of the resulting company in a stated ratio. The aim is focus and value unlocking. Total shareholder value is not created by the split itself. After a demerger the parent's share price falls to reflect the transferred business, and you now hold shares in both.

In a stock merger, target shareholders get acquirer shares. The swap ratio (exchange ratio) sets how many. It follows from the relative value per share of the two companies. Value per share can come from earnings, book value, market price or a blend, as agreed in the valuation report.

Key formulas to remember

Share swap ratio (by value per share)
Swap ratio = Value per share of target ÷ Value per share of acquirer
Gives acquirer shares issued per 1 target share. Use the same valuation basis for both.
New shares issued
New acquirer shares = Target shares outstanding × Swap ratio
Fractional entitlements are usually settled in cash or consolidated.
Swap ratio stated as X:Y
X : Y means X acquirer shares for every Y target shares
Example: 2:5 means 2 new shares for every 5 held, so ratio = 0.4.
Demerger entitlement
Resulting company shares received = Shares held × Entitlement ratio, where Entitlement ratio = X ÷ Y for a ratio stated as X:Y
Example: 1:2 means 1 resulting-company share for every 2 held, so the entitlement ratio = 1 ÷ 2 = 0.5.
Types of merger
Horizontal = same business; Vertical = supply chain; Conglomerate = unrelated
Learn these as one-line identifiers for MCQs.

How to solve Mergers, Demergers and Acquisitions questions

Use this order for any question on mergers, demergers or acquisitions.

  1. 1Identify the event: merger, amalgamation, demerger or takeover. Look for words like absorbed, new entity, split or control.
  2. 2If asked for a type, match the relationship: competitors (horizontal), supplier or customer (vertical), unrelated (conglomerate).
  3. 3If a ratio is given as X:Y, note which side is which. X is for the company issuing shares, Y is for the shares held.
  4. 4For a swap ratio from values, divide target value per share by acquirer value per share.
  5. 5Multiply the ratio by the shares held to get new shares. Round down for whole shares if asked.
  6. 6Check what happens to the holder: in a merger the holder gets acquirer shares; in a demerger the holder keeps the old shares and gets new ones.
  7. 7Check the answer for sense. If the target's value per share is lower than the acquirer's, the ratio must be below 1, so each target share yields fewer than one acquirer share.

Quickest way: Ratio first, then multiply

When to use it: Use for numerical swap or demerger entitlement questions when time is short.

  1. Convert any X:Y ratio to a decimal (X ÷ Y).
  2. Multiply by the number of shares held.
  3. For value-based ratios, put the target price on top and the acquirer price below.
  4. Eliminate options that invert the ratio.

Common mistakes in Mergers, Demergers and Acquisitions

  • Inverting the swap ratio

    You divide acquirer value by target value.

    Fix: Target value goes on top. If the target's value per share is lower than the acquirer's, the ratio is below 1.

  • Mixing up vertical and horizontal mergers

    Both involve related firms, so the terms blur.

    Fix: Horizontal means competitors. Vertical means supplier-customer chain.

  • Thinking a demerger leaves shareholders with fewer shares

    You assume the original holding is cancelled.

    Fix: You usually keep your original shares and receive extra shares of the resulting company.

  • Assuming the target always disappears in a takeover

    You treat takeover and amalgamation as the same.

    Fix: A takeover transfers control. The target can stay as a separate listed company.

  • Reading X:Y the wrong way round

    You rush and apply it to the wrong company.

    Fix: Read it as X new shares for every Y shares you hold.

  • Treating a conglomerate merger as one with synergies in operations

    You assume all mergers give cost savings.

    Fix: Conglomerate mergers combine unrelated businesses, so the benefit is mainly diversification.

Worked examples

Example 1

Company A (acquirer) has value per share of ₹400. Company B (target) has value per share of ₹300. B has 8,00,000 shares. Find the swap ratio and the number of new A shares issued.

Show the solution
  1. Swap ratio = 300 ÷ 400 = 0.75.
  2. New shares = 8,00,000 × 0.75 = 6,00,000.

Answer: Swap ratio is 0.75 (3 A shares for every 4 B shares). A issues 6,00,000 new shares.

Example 2

A company demerges its retail division. Shareholders get 1 share of the new retail company for every 4 shares held. You hold 1,000 shares of the parent. How many new shares do you get, and what happens to your parent shares?

Show the solution
  1. Entitlement ratio = 1 ÷ 4 = 0.25.
  2. New shares = 1,000 × 0.25 = 250.
  3. Parent shares are not cancelled in a demerger of this kind.

Answer: You get 250 shares of the new retail company and still hold 1,000 parent shares.

Exam tips

  • Expect definition questions on horizontal, vertical and conglomerate mergers. Learn one-line examples.
  • For ratio questions, check which company is the target before dividing.
  • Watch the words amalgamation versus takeover. One merges entities, the other transfers control.
  • Remember a demerger is the opposite of a merger and aims at focus and value unlocking.
  • NISM-Series-XV has negative marking: a wrong answer loses 25% of the marks assigned to that question. Leaving a question unanswered carries no penalty. Attempt a question only when you are reasonably confident of the answer.

Practice questions from Corporate Actions

Mergers, Demergers and Acquisitions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Mergers, Demergers and Acquisitions: frequently asked questions

What is the difference between a merger and a demerger?

A merger combines companies into one. A demerger separates a business unit into another company. Shareholders of the demerged company usually receive shares in the resulting company.

How do you calculate a share swap ratio?

Divide the target's value per share by the acquirer's value per share. The result is the number of acquirer shares given for each target share. Both values must use the same basis.

What are horizontal, vertical and conglomerate mergers?

Horizontal mergers join competitors. Vertical mergers join firms at different stages of a supply chain. Conglomerate mergers join firms in unrelated businesses.

Is an acquisition the same as a merger?

No. An acquisition or takeover gives the acquirer control, and the target may continue to exist. A merger combines the companies into one entity.