Types of Mergers

Types of Mergers

(a)  Horizontal Mergers. This  is where  two or more  firms  in the same  industry   and  at the same  stage of  production   join   together   so  as  to  enjoy   economies    of  large   scale.   For example Toyota Company merging with Nissan Company.

(b)  Vertical mergers. This is where two or more firms in the same industry and at different   stages of Production,   join    together    (amalgamate). For example   sugar    firm   merging    with    sugar   cane producing firm, textile firm merging with cotton producing firm etc.

There are two types vertical mergers;

(i) Forward Vertical Mergers. This  is the form of  vertical    integration   where  a firm  at a lower  stage of production  merges  with  the firm at higher  stage of production   like a secondary   school  merging with a university,   sugarcane  firm initiating  the process  of merging  with  a sugar  firm  etc.

(ii) Backward Vertical Mergers. This is the form of vertical integration   where a firm at higher stage of production    absorbs   a firm at a lower   stage   of production.    For   example    the   sugar   firm absorbs   a sugar cane plantation,   a steel manufacturing    industry absorbing    an iron supplying company etc.

Note

• Backward linkages.  This   is a situation    where   the   existing   large   firm   or   industry    leads   to establishment of another   industry   by providing    inputs   (raw materials).    For   example   a sugar industry having a backward linkage to a firm that grows sugar cane, a secondary school has backward linkage to a primary school
• Forward linkages. This   is   a   situation    where    an   existing    firm or   industry    leads   to   the establishment   of another firm to create market   for its products.   A sugar factory has a forward linkage to supermarket or restaurant, a secondary school has a forward linkage to a university.

(c) Lateral integration/merger is the expansion of a corporation to include other previously competitive enterprises within the same sector of goods or service production.   For example one candy maker takes over another candy maker.

(d)  Conglomerate (Diversifying) mergers.  This  is a merger between firms that are involved in totally unrelated business activities.,  For  example   a brewery   industry merging  with a textile  industry,  a sugar  industry  merging  with a furniture  industry. A conglomerate merger provides the merging companies with the advantage of diversification of business operations and target markets.