Merger
Two companies combining into one entity, with shareholders of both companies receiving new shares.
Definition
A merger is the combination of two companies into a single entity. Unlike an acquisition (where one company absorbs another), a merger creates a new combined entity. In practice, most 'mergers' have a dominant party and function similarly to acquisitions. For startup employees, the mechanics are similar: your shares are converted into shares of the new entity or cashed out based on the merger terms.
Why it matters
In a merger, your equity is converted based on the exchange ratio. If the merger values your company's shares at $10 each and the combined company's shares are worth $50, you might get 1 new share for every 5 old shares. The terms of the merger determine your payout.
Example
Company A (your employer) merges with Company B. The exchange ratio is 1:3 (you get 1 share of the new company for every 3 of your old shares). If you had 30,000 shares, you now have 10,000 shares of the combined entity.