Vertical Mergers

Submitted To:
Ms. Shatakshi Johri

Submitted By:
Anish Raj
SAP ID: 500085321
Enrolment ID: R760220055
Course: BBA LLB (Corp.), Batch1
Year: 3rd Year, 6th Semester
School of Law, UPES
COMPANY GROUP As per Black's Law Dictionary:

MERGER

"The fusion or absorption of one thing or right into another; generally

spoken of a case where one of the subjects is of less dignity or
importance than the other. Here the less important ceases to have an
independent existence."

VERTICAL MERGER

"Union with corporate customer or supplier"

Types of Mergers
Horizontal Merger

Vertical Merger

Conglomerate Merger

Cogeneric Merger

Reverse Merger
 Vertical Mergers
Vertical mergers are when companies at different stages along the same supply chain merge to create financial
synergy or improve operational efficiency.

A vertical merger is one of many different types of mergers and can help improve market share and lower
prices for materials or services.

For example, a company can buy the business that supplies them with the raw materials for a product.
The goal of this strategy is to own as many parts of the supply chain as possible and minimise transaction
costs typically spent on outsourcing.

A vertical merger will be successful if the integration has a positive net effect, such as lowering a distributor’s
operational cost or streamlining production processes for overall higher profits.
Types of Vertical Mergers

A. BACKWARD INTEGRATION

B. FORWARD INTEGRATION
A. BACKWARD INTEGRATION

Backward integration in vertical mergers occurs when a company acquires or merges with a supplier or
manufacturer in its supply chain.

This type of integration allows the company to control the production process of the inputs it needs to
produce its own products, thereby reducing its reliance on outside suppliers and potentially improving
efficiency.

For example, a car manufacturer may acquire a tire manufacturer to ensure a reliable supply of tires for
its vehicles. By integrating backwards, the car manufacturer can better control the quality, cost, and
availability of the tires it needs, which could improve its overall competitiveness in the market.

Backward integration can also help companies capture a greater share of the value chain and increase
their bargaining power with suppliers.

However, it can also be costly and complex, as integrating backwards requires significant investment and
expertise in new areas of production. Therefore, companies must carefully evaluate the potential benefits
and risks before pursuing this type of vertical merger.
B. FORWARD INTEGRATION

Forward integration in vertical mergers occurs when a company acquires or merges with a distributor or
retailer in its supply chain.

This type of integration allows the company to control the distribution and sales channels of its products,
potentially increasing its market power and profitability.

For example, a coffee company may acquire a chain of coffee shops to better control the retail end of its
business and increase its brand exposure. By integrating forwards, the coffee company can ensure a
reliable distribution channel for its products and capture more of the value chain, potentially increasing
its profitability.

Forward integration can also help companies reduce their dependence on third-party distributors and
retailers and improve their ability to manage product quality and customer experience

However, it can also be challenging and costly, as integrating forwards requires significant investment and
expertise in areas such as retail operations, marketing, and customer service. Factors such as market
conditions, competition, and regulatory environment should be taken into account when considering
forward integration in vertical mergers.
 Vertical Increased control: Vertical mergers allow companies to
control more of the supply chain, which can lead to greater
control over quality, cost, and timing of inputs, production,
ADVANTAGES and distribution.

Improved efficiency: Vertical mergers can lead to greater

efficiency in the supply chain, as companies can better
coordinate and streamline their operations, leading to cost
savings and improved productivity.

Greater market power: By integrating vertically, companies can

increase their market power and competitiveness by capturing
more of the value chain and reducing their dependence on
third-party suppliers or distributors.

Enhanced brand recognition: Vertical mergers can also help

companies increase their brand recognition and awareness by
expanding their product offerings or distribution channels.
 Higher costs: Vertical mergers can be expensive and
require significant investments in new areas of production,

DISADVANTAGES distribution, or marketing.

Complexity: Integrating different parts of the supply chain

can be complex and challenging, as companies may have
to manage different cultures, processes, and systems.

Risk of failure: Vertical mergers can be risky, as they

require careful evaluation of market conditions, customer
needs, and potential synergies to ensure that the merger is
successful.
 CASE STUDY
Aquisition of Flipkart by Walmart
In 2018, the Indian e-commerce giant Flipkart announced its acquisition by Walmart, a retail giant from the
United States. This acquisition was one of the most significant mergers in the Indian market and marked
Walmart's entry into the Indian e-commerce market.

The merger was a vertical one, where Walmart, a retail giant, acquired Flipkart, an e-commerce company.
Walmart had been operating in India for over a decade, but it had not been able to establish a strong presence
in the e-commerce market. Flipkart, on the other hand, was the leader in the Indian e-commerce market, with
over 80 million registered users and a valuation of over $20 billion.

The merger was a strategic move for Walmart to expand its global footprint and compete with Amazon, which
had a strong presence in the Indian market. The acquisition would also provide Walmart access to Flipkart's vast
database of customers and enable it to leverage Flipkart's technology and supply chain capabilities.
 However, the merger faced significant challenges, primarily due to the regulatory environment in
India.

Despite the challenges, the merger was completed in 2018, with Walmart acquiring a 77% stake
in Flipkart for $16 billion. The merger was a significant milestone for both companies and
demonstrated the growing importance of the Indian e-commerce market.

In conclusion, the vertical merger between Walmart and Flipkart was a strategic move for
Walmart to expand its global footprint and compete with Amazon in the Indian e-commerce
market. Despite the regulatory challenges, the merger was completed, and it remains one of the
most significant mergers in the Indian market to date.
REFERENCES COMPANY GROUP

Statutes
The Companies Act, 2013

Websites
https://www.indiacode.nic.in
https://www.scconline.com

Table of Content
https://archive.mbda.gov/news/blog/2012/04/5-types-company-mergers.html

Books
Sherman, A. (2010). Mergers and Acquisitions from A to Z. Ukraine: AMACOM.
Gaughan, P. A. (2017). Mergers, Acquisitions, and Corporate Restructurings. Germany: Wiley.

Articles
Salinger, M. A. (1988). Vertical mergers and market foreclosure. The Quarterly Journal of
Economics, 103(2), 345-356.
Thank You