Types of Merger – Merger | Financial Management

Types of Merger
Merger | Financial Management
Management Notes

Merger is the combination of two or more than two companies maintaining the identity of one of the companies.Merger is generally done to decrease competition and increase operational effieciency.Merger takes place between two entities of more or less size.Merger has high number of legal formalities to be done.Merger is done voluntarily by the companies.Merging companies is the case of mutual decision.The different types of merger are as follows:

  • Horizontal Merger
  • Vertical Merger
  • Conglomerate Merger

Horizontal Merger:

Horizontal Merger is the merger between two or more companies involved in same line of business or producing and selling identical and similar product.This type of merger is generally done to increase the market share by merging with competing company.This helps to obtain economy of scale in production and operation by eliminating duplication of facilities, reducing competition,reduction in cost,expansion in market segment.
For e.g.
Merger between Cocacola and Pepsi,etc.

Vertical Merger:

Vertical merger is the merger between two or more than two companies involved in different stages of production and distribution of same products.This type of merger is generally done to gain competitive advantage in the market and to gain profitability.This also helps in monitoring and helpsto improve performance of the company.Forward integration is combination with customer firm and backward integration is combination with supplier firm.
For e.g.
Merger between manufacturers and distributors,etc

Conglomerate Merger:

Conglomerate merger is the merger between two companies dealing in different industries or different line of production.This type of merger is generally done to smooth out wide fluctuation in earnings and provide more consistency in long term growth.This merger helps in diversifying the business.
For e.g.
Merger between departmental stores and informational technology corporation,etc.

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