Question

 Explain in detail the types of mergers.

Answer 1

1. onglomerate: Here, two totally unrelated business activities mearge. Pure conglomerate mergers is between the firms with nothing in common.
   Mixed conglomerate mergers involve firms which are going for product extensions or market extensions. Example: Walt Disney Company and the American Broadcasting Company. Here the new company formed had to face tough competition in both the products.
2. Horizontal merger: This merger is between companies in the same industry. It is a type of business consolidation that occurs between firms which are competitors and offering the same goods or service. It is in the condition where competition tends to be higher and the potential gains in market share are much greater for merging firms in such an industry.
   Example: A merger between Coca-Cola and the Pepsi beverage division, would create a new, larger organisation with more market share.
3.  Market extension mergers: It takes place between two companies that deal in the same products but in different markets. This merger is to make sure that the merging results in a bigger market and a bigger client base. Example: The acquisition of Eagle Bancshares Inc. by the RBC gave RBC a chance to deal in the financial market of Atlanta, which is among the leading upcoming financial markets in the USA. RBC has thus diversified due to this move.
4.  Product extension mergers: A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products ‘ and get access to a bigger set of consumers. This ensures that they earn higher profits.
   Example: The acquisition of Mobilink Telecom Inc. by Broadcom Broadcom deals in the’ manufacturing of
   Bluetooth personal area network hardware systems and chips for IEEE 802.11b wireless LAN. Mobilink Telecom Inc. deals in the manufacturing of product designs meant for handsets that are equipped with the Global System for Mobile Communications technology. It is expected that the products of Mobilink Telecom Inc. would be complementing the wireless products of Broadcom.
5. Vertical merger: A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry’s supply chain, merge operations. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one. Example: A vertical merger joins two companies that may not compete with each other, but exist in the same supply chain. An automobile company joining with a parts supplier would be an example of a vertical merger. Such a deal would allow the automobile division to obtain better pricing on parts and have better control over the manufacturing process. The parts division, in turn, would be guaranteed a steady stream of business.