Three Types Of Conglomerate Mergers

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Economists classify merger and acquistions into three groups: horizontal, vertical, conglomerate (Gaughan, 2007). Horizontal Mergers: A horizontal merger is defined as the merger of two or more companies operating in the same field and in the same stages of process of attaining the same commodity or service. That is to say a horizontal merger is the combination of firms that are direct rivals selling substitutable products within overlapping geographic markets. The aim in this type of merger is to eliminate a competitor company to increase market share and then buy up surplus capacity alternativelty obtain a more profitable firm. Besides such benefits, this type of mergers has the disadvatages of restricting new entries into the market and…show more content…
Conglomerate mergers result in combining of firms which compete in different product markets, and which are situated at different production stages of the same or similar products. That is to say, neither the products nor the inputs of these merging firms are the same. Conglomerate mergers result in significant advantages gained by the merging firms since they are the fastest means of entry into different activity fields in the shortest possible time span. Moreover, they reduce the financial risks by not putting all the eggs in one basket. (Gaughan, 2007). There are three types of conglomerate mergers: • Product Extension: In this type of mergers, firms that sell noncompeting products and use related marketing channels of production processes merge. • Market Extension: In such mergers, merging firms manufacture the same products or services but market them in different territorial markets. That is to say it is a merging of two firms selling competing products in separate geographic markets. In this way the firms get the opportunity to market their products in a wider range. • Pure Conglomerate Mergers: In such mergers, there is no relationship between firms neither in respect to manufacturing nor in respect to marketing and mergers are realized between firms operating in entirely different…show more content…
Studies based on analysis of accounting data have attempted to assess the economic impact of M&A by testing for changes in the profitability of the merged firms (Altiok-Yilmaz 2011) and the results are inconsistent. Some studies reported improved performance after merger event. For example, Ismail et al. (2010) found that some measures of corporate performance, such as profitability, suggest statistical significant gains in the years following Merger and Acquisition. Studies conducted by Lau et al. (2008) which compared pre-merger performance with the post-merger provided some evidence that mergers improve the post-merger operating performance. Ramaswamy and Waegelein (2003) tested the long-term post-merger financial performance of merged companies in Hong Kong

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