A company does not plan on merging with another company and although some mergers are voluntary other mergers are not. When a company is struggling, having financial difficulties and has used up all of its resources sometime it is in the best interest to merge. It is important for companies to understand the different mergers and to pick the best solution. Below team D will discuss the differences between a horizontal, vertical, and conglomerate merger and how those mergers differ from joint ventures.
Horizontal mergers are the combining of two or more companies in the same industry that are competitors. An example would be Sirius Satellite and XM radio. The benefit of this merger is a decrease in competition for all the companies involved. The disadvantages of this merger is that a horizontal merger is considered hostile due to a larger company “taking over” the smaller company and it feeling more like an acquisition than a merger (wiseGEEK, 2014). Another drawback is the companies not requiring to disclose or share all trade secrets resulting in jealousy and/or resentment.
Vertical mergers are more common and the companies involved in this merger do not compete directly in the same market. A vertical merger is a combination of two companies that produce different products or services and come together to produce one specific product. One of the merging companies would be the buyer of products and the other company would be the supplier (Colander, 2013). An advantage of this merger is lower costs due to the company not having to pay for the materials from the supplier. A disadvantage of this merger is forcing suppliers out of business and anti-trust issues.
Unlike horizontal and vertical mergers, a conglomerate merger is less personal and merges two companies in different markets that are unrelated to each other to grow financially and to increase their market share. An advantage of this merger is the advantage to reach a bigger audience. When two companies merge together they have access to the other companies’ market base. The size of the companies can be an advantage or disadvantage. The size can be a disadvantage because of structure changes, i.e. an increase of employees as well as core values being lost due to the merge.
Joint venture occurs when commercial enterprise is undertaken jointly by two or more parties and at the same time still maintaining their individual identities. Joint ventures seem a bit more beneficial when compared to mergers. One pro of joint venture is that the companies continue to exist as their own, whereas with mergers the two firms are one and no longer independent (Chron, 2014). An example of a joint venture is a cable and a phone company coming together offering both of their services like a bundle that offers special discounts.
The three different types of merges team d learned about are horizontal, vertical and conglomerate. We also learned the difference of the three and the advantages and disadvantages of the different mergers and how joint ventures differ from mergers. It is important for firms to knowledgeable about mergers and joint ventures so that they may make the best decisions for their firm.
Chron. (2014) Retrieved from http://smallbusiness.chron.com/difference-between-mergers-joint-ventures-18578.html Colander, D. C. (2013). Microeconomics (9th Ed.). New York, NY: