Question

What are the 4 different kinds of mergers? List them and give a hypothetical example of each?

Answer 1

The 4 different types of merger is :

• Horizontal merger
• Vertical merger
• Product extension merger
• Conglomerate mergers.

Horizontal merger : This kind of merger takes place between competing firms.They compete on product lines and market share.

For example: If firm X mergers with Firm Y , both are operating in the same line of business. This will result in increase of market share,economies of scale and synergy.

If Coca Coal and Pepsi merge then this is an example of a horizontal merger.

Vertical merger : Vertical merger is the merge between companies that are on different stages of the  supply chain.

For example, if a car manufacturing company purchased a tire manufacturer that will result it's overall cost of producing cars.

E-bay takeover of PayPal helped E-bay increase it's total number of transactions.

Product extension merger :

This merger happens between companies that have the same line of business and produce similar products and services but they sell their products in entirely different markets. This kind of merger helps increase the market share.

For example: A local or domestic software developing company is taken over by a multinational software developing company.

Conglomerate merger is the shift in the business as it is a merger between two companies who operate in different lines of business.It helps in diversification, cross selling and provides investment opportunity.

When an automobile manufacturing company enters into a merger with a pharmaceutical company, it will be termed as a conglomeration merger.

Amazon takeover of Whole foods. By combining these two firms, Amazon can soon start it's brick and mortar grocery stores.