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Horizontal Mergers Essay

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When two companies join hands to consolidate legally their operating units, usually by proffering securities to the stockholders of one company in reciprocity of the surrender of their stock; it is called a “Merger.”In such a situation, two companies cease to be distinct and work together to achieve the shared objective i.e. to maximize the profit of the merged entity. (Mueller,2003)
Types of Mergers Horizontal Mergers- A situation wherein two companies working in the same space, often as competitors offering the same good or services consolidate their resources to become a single distinct entity, it is called a “Horizontal Merger.” The potential idea is to increase the market share by merging with a competitor. Examples- Lloyd's TSB & …show more content…

The value of a merged company(VXY) is expected to be greater than the values of individual companies (VX, VY) (VXY > (VX+VY) These mergers are undertaken to achieve cost savings in the long run. By eliminating intersecting costs like administrative expenditure, marketing expenditure; financial performance can be improved by decreasing fixed and variable costs. Merging removes a competitor from the market and thus increases the market’s HHI, giving greater power in the hands of the merged firm.(Mueller,2003)
Cost-Benefit Analysis of Horizontal Mergers Economies of Scale- In the case of a merger, the firm gets the advantage of economies of scale and can reap into the benefits of low cost and high returns. (Andrade,2001) Complementary resources, patents, and factors of production- Various intersecting costs can be cut which saves money, effort, and time. (Andrade,2001) Increased market share- When two competitors in the same marketplace join hands, they get the advantage of increased market share. Power position in the market- Horizontal mergers may allow firms to cross-subsidize products and thus limiting competition in more than one market. It establishes market power by deterring entry of new

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These facts gave the idea of combining the 2 to make one big company instead of losing money from competing constantly.

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1) Andrew Carnegie used vertical integration, controlling every step in the process of manufacturing a product, dominating the market. Vertical integration is when the company owns all means of distribution from beginning to end, this makes supplies more reliable and improved efficiency. It controlled the quality of the product at all stages of production. Horizontal integration was used by John D. Rockefeller and is an act of joining or consolidating with one’s competitors to create a monopoly. In Ohio in 1870 he organized the Standard Oil Company.

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Rockefeller’s lawyers created trust to hold stocks from all the combined firms, managing the entire business. On last example of vertical integration is Gustavus Swift who had engineers create refrigerated cars to ship meat. As Swift controlled all aspects of production as he made huge profits, his work force was under paid. He also used predatory pricing to keep competitors on their

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For instance, John D. Rockefeller pursued numerous of strategies, to try to eliminate his competitors. From horizontal integration, in which he tried to buy or force his competitors out, to vertical integration, which Andrew Carnegie also practiced, meaning they eventually owned everything they needed to produce. J. Pierpont Morgan had a different strategy in an attempt to monopolize his company, he would help merge competing corporations by purchasing massive amounts of stocks and selling them at a profit. These strategies helped capitalize the entrepreneurs control in the growing

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Its important to know about the other company and check about the opportunities. Sometimes merging or acquiring a wrong company would create heavy losses. Merger is when two individual companies combine their assets and liabilities and form an entirely new company. Acquisition is when a company takes over or purchases an another company with the view to expand or diversify its operations. Its mostly that large companies take over the smaller ones but there are instances where the smaller company takes over the larger one (Akbar D. Y., Global Strategy - mergers and acquisitions, 2015

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Question 1 Several factors have been proposed as providing a rationale for mergers. Among the more prominent ones are (I) tax considerations, (2) diversification, (3) control, (4) purchase of assets below replacement cost, and (5) synergy. From the standpoint of society, which of these reasons are justifiable? Which are not?

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The act of undercutting a competitor's prices until they were forced out of business. This business model/strategy is a textbook use of horizontal integration, the act of buying up competitors. Rockefeller's expansion did not stop at the Oil industry, however, as he actively engaged and negotiated with railroads. Through budding relations with the railroads, Standard Oil was able to secure preferential rates for shipping. The second tactic Rockefeller employed is known as vertical integration.

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The difference between horizontal and vertical integrations is that vertical integration typically expands into another product stage rather than merging or acquiring the company in the same production stage. For example a company is vertically integrating if it expands from manufacturing industry to retailing industry. In the other hand Horizontal Integration would mean buying other firms in the same manufacturing industry. Advantages of horizontal integration are lower cost, in a large company like Quaker and PepsiCo that produces more products world wide. The higher output leads to better economies of amount and higher competence.

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A company that merges

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Whereas, horizontal growth is when a company take over another company by mergers, acquires and take over a company in the same industry to increase their products and services offered. For example, a company is vertically integrating if it expands from manufacturing industry to retailing industry, while HI would mean buying other firms in the same manufacturing

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Many mergers tend to fail and many others succeed. A merger is the combining of assets and operations, usually between two similar sized companies, in an agreement to join together. Mergers can cause bankruptcy, job losses, less choices, and even a breakup. On the other hand, they have many advantages such as, increased market share, lower cost of production, and higher competitiveness. Most mergers can be highly risky but with the presence of knowledge and intuition they can be successful.

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It notes that stiff competition can reduce the potential profit of like companies. Firms must determine the strategy that will be utilized to gain and maintain the upper hand in the industry, as it relates to price, marketing, competition and the introduction of new and innovative products into the market. The more a company senses competition the intensity of its strategy may increase as it does not only respond to other firms, but also to the industry as a whole. It is natural for firms to respond to competitive moves made by its rival as it will have an effect albeit positive or negative on the industry. Firms may be forced to supply the demands for cheaper but more reliable products or to create differentiated products to maintain the competitive

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