AIBS

Amity International Business

School
MBA IB Semester III
MERGERS, ACQUISITIONS AND RE-STRUCTURING
Ms. Navleen Kaur

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 Types of Mergers AIBS

• Merger or acquisition depends upon

purpose for which the target company is
acquired.

• Horizontal Merger
• Vertical Merger
• Conglomerate Merger

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 Horizontal Merger AIBS

• A horizontal merger involves merger between two

firms operating and competing in the same kind of
business activity.

• Example: The merger of Centurion Bank and Bank of

Punjab, Oriental Bank of Commerce and GTB in Banking
Sector.
• Tata Industrial Finance Ltd. With Tata Finance Ltd. In
Finance Sector.
• A big merger between Holicim and Gujarat Ambuja
Cement Ltd in manufacturing sector
• Idea Cellular and Escotel in telecom sector.
• Daimler-Benz and Chrysler in car manufacturing sector.

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 Objectives/Purpose AIBS

Horizontal Merger
• To obtain economies of scale of production

– Elimination of duplication of facilities and operations

– Broadening the product line
– Reduction in investment in working capital
– Elimination of competition in a product
– Reduction in advertising costs
– Increase in market share
– Exercise of better control on market etc.

• Monopoly profits, monopoly power enabling firms to

engage in anti-competitive practices.

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 Vertical Mergers AIBS

• A vertical merger involves merger between firms that are in different

stages of production or value chain. They are combination of
companies that usually have buyer-seller relationships.

– Backward Integration: A form of vertical integration that involves the

purchase of suppliers in order to reduce dependency.
A good example would be if a bakery business bought a wheat farm in
order to reduce the risk associated with the dependency on flour.

– Forward Integration: A business strategy that involves a form of

vertical integration whereby activities are expanded to include control
of the direct distribution of its products.

– Horizontal Integration: When a company expands its business into

different products that are similar to current lines.
Example: A hot dog vendor expanding into selling hamburgers would be
an example of horizontal integration.

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 AIBS

Example: Nirma’s bid for Gujarat Heavy

Chemical (backward integration) or Hindalco
bidding for Pennar Aluminium (forward
integration). Videocon Group’s acquisition of
Thomson’s Colour Picture Tube in China.

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 Objectives/ Purpose of AIBS

Vertical Merger
• To expand its operations by backward or forward
integration.
• To reduce inventories of raw materials and finished
goods.
• Implements its production plans as per objectives.
• Economizes on working capital investments.
• Technological economies.
• Elimination of transaction costs.
• Improved planning for inventory and production.
• Reconciliation of divergent interests of parties to a
transaction etc.
• Anti-competitive effects.

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 Conglomerate Merger AIBS

• Conglomerate mergers is a merger between

firms that are involved in totally unrelated
business activities.
• There are two types of conglomerate mergers:
pure and mixed. Pure conglomerate mergers
involve firms with nothing in common, while
mixed conglomerate mergers involve firms that
are looking for product extensions or market
extensions (geographic market extension
merger).

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 Objectives/Purpose AIBS

Conglomerate Merger
• There are many reasons for firms to want to merge,
which include utilization of financial resources,
increasing market share, synergy and cross selling.
Firms also merge to diversify and reduce their risk
exposure. Such type of merger enhances overall
stability of acquirer company and creates balance in
company’s total portfolio of diverse products and
production processes.
• However, if a conglomerate becomes too large as a
result of acquisitions, the performance of the entire firm
can suffer. This was seen during the conglomerate
merger phase of the 1960s.
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