What are the types of mergers?
Mergers may be classified into the following three types; (i) horizontal, (ii) vertical, and (iii) conglomerate.
A horizontal merger takes place when two or more corporate firms dealing in similar lines of activities combine. For example, the merger of two publishers or two luggage manufacturing companies. Elimination or reduction in competition, putting an end to price cutting, economies of scale in production, research and development, marketing, and management are the often-cited motives underlying such mergers.
A vertical merger is a combination of two or more firms involved in different stages of production or distribution. For example, joining a spinning company and weaving company. The vertical merger may be forward or backward. When a company combines with the supplier of material, it is called a backward merger and when it combines with the customer, it is known as a forward merger. The main advantages of such mergers are lower buying cost of materials, lower distribution costs, assured supplies and market, increasing or creating barriers to entry for competitors, etc.
Conglomerate merger is a combination in which a firm in one industry combines with a firm from an unrelated industry. A typical example is the merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment, and advertising agencies. Voltas Ltd. is an example of a conglomerate company. Diversification of risk constitutes the rationale for such mergers.
Horizontal Merger:
A horizontal merger takes place when two or more corporate firms dealing in similar lines of activities combine. For example, the merger of two publishers or two luggage manufacturing companies. Elimination or reduction in competition, putting an end to price cutting, economies of scale in production, research and development, marketing, and management are the often-cited motives underlying such mergers.
Vertical Merger:
A vertical merger is a combination of two or more firms involved in different stages of production or distribution. For example, joining a spinning company and weaving company. The vertical merger may be forward or backward. When a company combines with the supplier of material, it is called a backward merger and when it combines with the customer, it is known as a forward merger. The main advantages of such mergers are lower buying cost of materials, lower distribution costs, assured supplies and market, increasing or creating barriers to entry for competitors, etc.
Conglomerate Merger:
Conglomerate merger is a combination in which a firm in one industry combines with a firm from an unrelated industry. A typical example is the merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment, and advertising agencies. Voltas Ltd. is an example of a conglomerate company. Diversification of risk constitutes the rationale for such mergers.
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