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Concept and Types of Mergers - Mergers and Acquisitions

   Posted On :  26.06.2018 09:35 pm

A merger is a combination (other terms used: amalgamation, consolidation, or integration) of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash, or both the organizations are dissolved, and the assets and liabilities are combined and new stock is issued.

Concept and Types of Mergers
 
A merger is a combination (other terms used: amalgamation, consolidation, or integration) of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash, or both the organizations are dissolved, and the assets and liabilities are combined and new stock is issued. In mergers, all the combining firms relinquish their independence and cooperate, resulting in common cooperation.
 
For the organization, which acquires another, it is an acquisition. For the organization, which is acquired, it is a merger. If both organizations dissolve their identity to create a new organization, it is consolidation More time is taken for merger than acquisition. Mergers are three types: horizontal mergers, vertical mergers and concentric mergers.

Horizontal mergers take place when there is a combination of two or more organizations in the same business, or of organizations engaged in certain aspects of the production or marketing process.
 
For instance a company making footwear combines with another retailer in the same business.
 
Vertical mergers take place when there is a combination of two or more organizations not necessarily in the same business, which complement either in terms of supply of materials (inputs ) or marketing of goods and services (outputs).
 
For instance a footwear company combines with a leather tannery or with a chain of she retail stores.
 
Concentric mergers take place when there is a combination of two or more organizations related to each other either in terms of customer functions, customer groups, or the alternative technologies used.
 
A footwear company combining with a hosiery firm making socks or another specialty footwear company, or with a leather goods company making purses, handbags, and so on.
 
Conglomerate mergers take place when there is a combination of two more organizations unrelated to each other, either in terms of customer functions, customer groups, or alternative technologies used. A foot wear company combining with a pharmaceuticals firm.
 
Mergers carried out in reverse are known as demergers or spin-offs. Demerger involves spinning off an unrelated business/division in a diversified company into a stand-alone company along with a free distribution of its shares to the existing shareholders of the original company.
 
There are a few cases of demergers in India namely the demerger of Hoechst Schering Agrevo Ltd. From Hoeschst India Ltd, Ciba Specialty from Hindustan Ciba Geigy Ltd., from Sandoz renamed as Chariant India, and Aptech from Apple Industries Ltd. 
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