Question

: Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private.

Answer 1

Mergers:- When two business become one by either acquiring or creating another company is called merger. In general words fusion of two companies is called merger.

Types of Merger and examples:-

1. Horizontal merger
2. Vertical merger
3. Conglomerate merger
4. Congeneric merger
5. Reverse merger

Horizontal merger: When two companies merged for monopoly it is called horizontal merger. It happens normally in same industry. Example :- HP and Compaq merger was a horizontal merger.

Vertical Merger: When a producer or seller purchase its customer business and vice versa is called vertical merger.Example :- Paypal acquired by e-bay.

Conglomerate merger: Other than above two types of merger is called conglomerate merger. This mean when no relation exists between two entities and they merge together is called conglomerate merger. This type of merger made for the purpose of better utilization of financial, human resources and other benefits.Example:- Phillip morris and miller brewing merger.

Congeneric merger: When companies having same business process or technology merges is called congeneric merger. example: citigroup acquistion of travelers insurance

Reverse merger: When a private company acquires any public company it is called reverse merger.Example -ted turner and rice broadcasting.

Role of leveraged buyouts and taking a firm private

Leverage Buyout:

It means a company another company by taking loan or debt other than huge capital. In another words source to meet out the cost of acquisition is debt is called leverage buyout.

Taking a firm Private:

On occasion of public company opts to become private company is called “Going Private” or taking a firm private. This may be done by management buyout, management buy in or leverage buyout. In this case shareholder of company cannot trade their shares in exchange or market.