THE COMBINING OF TWO OR MORE COMPANIES, GENERALLY BY
OFFERING THE STOCKHOLDERS OF ONE COMPANY SECURITIES IN THE
ACQUIRING COMPANY IN EXCHANGE FOR THE SURRENDER OF THEIR
EXAMPLE: GLAXOSMITHKLINE BANGLADESH LIMITED DURING 2002 AFTER
MERGER WITH SMITH KLINE BEECHAM IN DECEMBER 2000.
British Salt operating in UK merged with TATA Chemicals based in India.
Zain Telecommunications operating in Africa merged with Bharti Airtel
Limited based in India.
Bank of Rajasthan operating in India merged with ICICI Bank (India).
Different types of merger
Conglomerate: A merger between firms that are involved in totally
unrelated business activities.
Example: Walt Disney Company and the American Broadcasting
Horizontal Merger: A merger occurring between companies in the
Example: Coca-Cola and the Pepsi beverage division would be an
example of horizontal merger.
Market Extension Mergers: A market extension merger takes place
between two companies that deal in the same products but in
Example: Eagle Bancshare Inc. with RBC in Atlanta.
Different types of merger continue
Product Extension Mergers: A product extension merger takes
place between two business organizations that deal in products
that are related to each other and operate in the same market.
Example: The acquisition of Mobilink Telecom Inc. by Broadcom to
complement the wireless products of Broadcom.
Vertical Merger: A merger between two companies producing
different goods or services for one specific finished product.
Example: An automobile company joining with a parts supplier would
be an example of a vertical merger.
Benefits or advantages of merging
Economies of scale
Mergers may allow greater investment in R&D
Protect an industry from closing:
Objectives of merger:
gaining access to technology or products,
acquiring additional customers,
creating or removing barriers to entry, and
Developing economies of scale.
When two firms in the same industry merge, they gain a larger share
of the market, which means they decrease their competition and so
can raise prices.
Advantages of merger strategy
Mergers are legally simple and easy for companies to perform.
Compared to most forms of acquisition, mergers are a much
cheaper option for companies to consider.
They are also great for decreasing the amount of competition in a
particular company’s field of business.
Companies that merge together have the opportunity to exchange
business ideas and strategies.
Mergers allow them to discuss weak areas of their company, and
work together to resolve those areas.
When two companies combine together they appear more reliable,
which can lead to more confident or loyal customers.
Disadvantages of merger strategy:
Stockholders decide on whether or not a merger should take place. If
the majority of a firm’s stockholders do not agree on a merger then the
firm cannot proceed with a merger. Usually, at least two thirds of all
stock holders within a company must approve the decision.
Stockholders have to agree with the executive decision, which means
companies have to spend a decent amount of time convincing the
Sometimes, companies that merge realize they have conflicting
business strategies, and end up spending more time than necessary
making decisions for their company.
One of the important disadvantages of mergers is that they often
create employee dissatisfaction, due to merging companies having
two people for one position, which leads to workers being let go.
Mergers are often rewarding and beneficial for companies, or
complete failures for other companies.