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Definitions
A merger is a combination of two or more
corporations in which only one corporation
survives and the merged corporations go out
of business.
Statutory merger is a merger where the
acquiring company assumes the assets and
the liabilities of the merged companies
A subsidiary merger is a merger of two
companies where the target company
becomes a subsidiary or part of a subsidiary of
the parent company
Acquisitions
one firm buys another
firm
Acquisitions
can be a controlling
share, a majority, or
all of the target firms
stock
can be friendly or
hostile
usually done through
a tender offer
Vertical
Related
Unrelated
Horizontal
suppliers or customers
competitors
Product Extension
complementary products
Market Extension
complementary markets
Conglomerate
everything else
Types of Mergers
Horizontal Mergers
- between competing companies
Vertical Mergers
- Between buyer-seller relation-ship companies
Conglomerate Mergers
- Neither competitors nor buyer-seller
relationship
Horizontal Merger
A merger occurring between companies in the
same industry. Horizontal merger is a business
consolidation that occurs between firms who
operate in the same space, often as competitors
offering the same good or service.
Examples:- The biggest M & A deal was done by
Reliance Communication which merged its
telecoms tower business with GTL infrastructure
Ltd for USD 11 billion.
Bharti Airtel acquired Kuwait based Zain
Telecom's
Vertical Mergers
A merger between two companies producing
different goods or services for one specific
finished product. A vertical merger occurs when
two or more firms, operating at different levels
within an industry's supply chain, merge
operations.
Example:-An example of a vertical merger is a car
manufacturer purchasing a tire company. Such a
vertical merger would reduce the cost of tires for
the automaker and potentially expand business
to supply tires to competing automakers.
Conglomerate Mergers
A conglomerate merger is officially defined as
being "any merger that is not horizontal or
vertical; in general, it is the combination of
firms in different industries or firms operating
in different geographic areas".
Free Cash
Flow
Managerial
Hubris
Summary
M&A activity is a mode of entry for vertical
integration and diversification strategies
A firms M&A strategy should satisfy the
logic of corporate level strategy
M&A activity can create economic value at
announcement, but target firms usually capture
that value
M&A activity can create value over the long term
for the acquiring firm