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(1) MERGERS & ACQUISITIONS
There are 3 merger types: Horizontal, Vertical and Conglomerate
1) Horizontal Merger
A horizontal merger is a merger between two (or more) competitors. Suppose, for example, that tomorrow Pepsi were to buy Coca-Cola. This would be a horizontal merger.
Horizontal mergers may negatively affect the competitive situation in an industry. Therefore, they frequently run afoul of regulatory officials. A horizontal merger often increases the degree of concentration in an industry. However, there is still an advantage from this merger if taking “potential size” into account.
When two firms have asymmetric costs, a merger can create sufficiently large cost savings and be profitable. Fixed costs can be reduced by combining the headquarters of the two firms, eliminating unnecessary overlap, combining R&D functions, and economizing duplicated marketing efforts. For variable costs, merging will result from only between a high-cost firm and a low-cost firm to be true for cost reduction—all production will be transferred to the firm with lower costs. We might also say that a merger between a high-cost and a low-cost firm will be profitable provided that the cost disadvantage of the high-cost firm prior to the merger is large enough.
2) Vertical Merger
A vertical merger occurs when a supplier buys a reseller, or vice versa. The key point is that the two companies have a buyer-seller relationship.
Suppose that a jewelry retailer purchased a company that manufactures jewelry. This would be a vertical merger. Or, suppose that a pharmaceutical company acquired a drugstore chain. (This in fact happened when pharmaceutical giant Merck acquired Medico Contai ...