Question

Four economic classifications of mergers are (1) horizontal, (2) vertical, (3) conglomerate, and (4) congeneric. Explain the significance of these terms in merger analysis with regard to (a) the likelihood of governmental intervention and (b) possibilities for operating synergy. Use a practical example for illustrative purposes.

Answer 1

Horizontal Merger is the merger of two firms who are into the same line of business.This type of meger occurs when firms wants to reduce comptetion and reach economies of scale in production.For Example -Hotel Marriots acquiring Sheraton group.This merger is horizontal as both are in hospitality industry and were comptitors .This help the hotel groups to gain comptetive advantage.

Vertical Merger: a vertical merger takes place when firms from different parts of the provision of supply chain consolidate to create or makes the production process more efficient and  cost effective.Simple terms it is merger of two companies along the value chain.For example-A store selling milk and other dairy products purchase a dairy farm.Both are in the supply chain parts hence it is a vertical integration.The big conglomerate Apple is vertically integrated .Apple is having four intities working for it in harmony .

Conglomerate merger:It is a merger of two firms involved in totally unrrelated business.This type of mergers generally occurs between firms operating in different geographical location or within different industries.Example-Merger of Walt disney with American Broadcasting company.It helped Walt Disney to increase it's reach to broader base of people.

Congeneric Merger:This is a type of merger where two companies which are in the same or related industries or markets but do not offer the same products. Example of a congeneric merger is Citigroup's acquisition of Travelers Insurance.Both are in financial service industry but the product line is different.

There are certain cases where meger are against public intrest then the role of government comes in.For example two big firms coming together to have a monopoly over the market and to charge anything as price from customer such type of mergers are often interrupted by the government.Merged company sometimes take advantage of their position and pay less to suppliers then in such cases the governement intervene.