BUSINESS COMBINATION

PRESENTED BY GROUP NO. 2

 GROUP MEMBERS

1. AARON
2. APOORWA
3. SHREYA
4. NITIN
5. RAYMOND
6. RITIKA
 BUSINESS COMBINATION
The term business combination refers to
any set of conditions in which two or
more organizations are joined together
through common ownership.
 HORIZONTAL COMBINATION
When two or more industrial units which
produce similar products join together is
called horizontal combination. They are at
the same stage of production, and are
dealing in the same geographical market.
For example, association of two sugar mills
under one management.
 MERITS
 Reducing competition
 Larger and effective control over the
market.
 Avoidance of the risks of undue price
fluctuations in the market.
 Reduction in the cost of production
 DEMERITS
 Gives rise to monopolistic tendencies, which
always work against the welfare of the
community.
 Indulge in restrictive practices and create an
unhealthy atmosphere.
 Management of too big combinations is really
a difficult task.
 Stunting economic growth of the new
enterprise.
 Example
Consider a famous horizontal merger: HP
(Hewlett-Packard) and Compaq in 2011. The
structure was a stock-for-stock merger with
an exchange ratio of 0.63 HP share per
Compaq share valued at approximately US$25
billion. The new company would be held 64%
by HP and 36% by Compaq shareholders.
 VERTICAL COMBINATION

In the case of vertical combination, several

independent businesses operating in
successive stages in the same industry
come together. It is the combination of
firms which are dependent on each other
– the finished product of one being the
raw material for another.
 MERITS
 Self sufficiency

 Regular supply of raw material

 Technical economies

 It eliminates middleman’s profits

 It also facilitates continuous utilization of

plant.

 It also assures full control over the market.

 DEMERITS
 Co-ordination and control of large
combinations is really a difficult task.
 No benefit of economies of scale
 Conflicts
 Inflexibility
 This type of combination shall not yield good
results if the sizes of different units vary.
FACTORS LEADING TO COMBINATION
 Elimination of competition

 Change in economic policy

 Economies of large scale production

 Transportation development

 Competing in the international market

 Fluctuations in business activity

 FORMS OF COMBINATION
TRADE ASSOCIATIONS

ACQUISITION

CARTEL

MERGER

HOLDING COMPANIES