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Mergers and Joint Ventures
Introduction
This week the team discusses the difference between Mergers and Joint ventures. A merger is any coming together of companies into one and invariably when two or more companies work together on a common goal is a joint venture. Below we discuss the different types of mergers and joint ventures. The types of mergers are as follows: horizontal, vertical, conglomerate, and lastly a joint venture.
Horizontal
Horizontal mergers occur when there is more than one firm within the same market operating their firm out of the same location (Collander 2013). This may also include firms in the market that are competitive in that they sell like services and/or goods. For example, is Kellogs and Post cereal made the decision to merge their 2 businesses, this would limit the amount of competition and also limit the amount of horizontal mergers. Ultimately this merger would also give the firm the benefit of an increase in their gains in addition to a reduction in costs. The horizontal merger increases the chance of the firm’s growth as the demand for their good and/or services increases due to limiting the competition.
Vertical “Vertical merger occur when two companies that are next to each other on the supply-chain decide to become one entity. If for instance a supplier and customer become one, the output of one arm of the company is fed into the other and synergies occur.” (Bright Hub, 2012) A prime example of this is shown by the Mars, Inc. Mars has a commercial for Twix of the left and right Twix candy bars. In reality, this is one company but the commercial makes consumers believe there is a left and right company. If the scenario were true, combining the two would be a vertical merger. Each candy bar could be sold individually which would be competing companies but combining the two would be a vertical merger. “In stark contrast to a merger, a joint venture is merely the coming together of two business
Introduction
This week the team discusses the difference between Mergers and Joint ventures. A merger is any coming together of companies into one and invariably when two or more companies work together on a common goal is a joint venture. Below we discuss the different types of mergers and joint ventures. The types of mergers are as follows: horizontal, vertical, conglomerate, and lastly a joint venture.
Horizontal
Horizontal mergers occur when there is more than one firm within the same market operating their firm out of the same location (Collander 2013). This may also include firms in the market that are competitive in that they sell like services and/or goods. For example, is Kellogs and Post cereal made the decision to merge their 2 businesses, this would limit the amount of competition and also limit the amount of horizontal mergers. Ultimately this merger would also give the firm the benefit of an increase in their gains in addition to a reduction in costs. The horizontal merger increases the chance of the firm’s growth as the demand for their good and/or services increases due to limiting the competition.
Vertical “Vertical merger occur when two companies that are next to each other on the supply-chain decide to become one entity. If for instance a supplier and customer become one, the output of one arm of the company is fed into the other and synergies occur.” (Bright Hub, 2012) A prime example of this is shown by the Mars, Inc. Mars has a commercial for Twix of the left and right Twix candy bars. In reality, this is one company but the commercial makes consumers believe there is a left and right company. If the scenario were true, combining the two would be a vertical merger. Each candy bar could be sold individually which would be competing companies but combining the two would be a vertical merger. “In stark contrast to a merger, a joint venture is merely the coming together of two business
References: Investopedia. (2014). Retrieved from http://www.investopedia.com/terms/j/jointventure.asp Merriam-Webster. (2014). Retrieved from http://www.merriam-webster.com/dictionary/merger Colander, D. C. (2013). Microeconomics (9th ed.). Boston, MA: McGraw-Hill/Irwin. Bright Hub. (2012). Retrieved from http://www.brighthub.com/office/entrepreneurs/articles/82448.aspx