A merger occurs when two approximately equal-sized companies combine to form a single new company. Companies usually merge to be able to accomplish things together that they could not do individually. There are three main types of mergers: horizontal mergers between companies in the same industry, vertical mergers between companies in adjacent business stages (e.g. manufacturer and supplier), and conglomerate mergers between unrelated industries. Mergers allow companies to gain economies of scale through cost savings from increased size and production, but large integrated firms can also face diseconomies of scale like slow decision making.

1. By Palash Goyal

2. MERGER
A merger is a transaction that results in the
transfer of ownership and control of a
corporation. When one company purchases
another company of an approximately similar
size. The two companies come together to
become one. Two companies usually agree to
merge when they feel that they can do
something together that they can't do on their
own.

3. When two companies join
to form one new firm if it
is
voluntary, also known
as a ‘merger’

4. Types of Merger-
 Horizontal merger :- A merger occurring
between companies producing similar goods
or offering similar services. This type of
merger occurs frequently as a result of larger
companies attempting to create more
efficient economies of scale. Example:- The
amalgamation of Daimler-Benz and
Chrysler Company A Company B Company
A B.

5.  Vertical Mergers Definition:- A merger
between two companies producing different
goods or services for one specific finished
product. The merger of firms that have actual
or potential buyer-seller relationships.
Example:- An example of a vertical merger is a
car manufacturer purchasing a tire company.
Product of company A Product of Company
B Product of company A B

6.  Conglomerate Merger :-
 A merger between firms that are involved in
totally unrelated business activities.
 There are two types of conglomerate mergers:-
 Pure:- Pure conglomerate mergers involve firms
with nothing in common .
 Mixed:- mixed conglomerate mergers involve
firms that are looking for product extensions or
market extensions.

7. Example:-
A simple example would be, American
Broadcasting company (ABC) which has
highest broadcasting channels joining
Waltdisney that creates cartoon characters to
promote cartoon channels in America.

8. Ways of Merger A merger can
take place in following four ways:
By purchase of assets.
 By purchase of common share
.
The asset of company Y may be sold to
company X .
once this is done company Y is then legally
terminated and company X survives .

9. The common share of company Y
may be purchased by company X.
when company X holds all the
shares of company Y it is dissolved .
Exchange of shares for shares.
Company X may give its share to
stake holders of company Y for its
net assets.
Cont.

10. Firms are sometimes keen to merge
when:
•they can make savings
from being bigger.
•this is known as gaining ‘economies
of scale’.
•they can compete with larger firms
or eliminate competition.
•they can spread production over
a larger range of products or services

11. Economies of Scale
•Technical economies , when producing the
good by using expensive machinery intensively.
•Managerial economies,
by employing specialist managers.
•Financial economies, by borrowing
at lower rates of interest.

12. •Commercial economies,
by buying materials in bulk.
•Marketing economies,
spreading the cost of advertising
and promotion.
•Research and development economies,
from developing better products.

13. There are sometimes problems
that can affect integrated firms.
These are known
as ‘diseconomies of scale’

14. •Firms are too big
to operate effectively.
•Decisions take too long to make.
•Poor communication occurs.
Cont..