MERGERS

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When two companies combine under single ownership of control, we say that the two companies have merged. There are three basic types of mergers:

Horizontal Merger is a merger between firms that are selling similar products in the same market. The bank merger of 1980s and the merger of HP and Compaq are examples of horizontal merger. A horizontal merger decreases competition in the market.

Vertical Merger is a merger between companies in the same industry, but at different stages of production process. In another words, a vertical merger occurs between companies where one buys or sells something from or to the other. For example, Pepsiís merger with restaurant chains that it supplies with beverages is a vertical merger. E-Bay buying PayPal is another example.

Conglomerate Merger is a merger between companies in different industries. Phillip Morris and Miller Brewing merger is an example.

The government looks more carefully at proposed horizontal mergers because they are more likely to increase concentration and reduce competition. Vertical mergers are usually ignored unless they are between the two firms who are each in highly concentrated industries. However, in 1949 case, it was shown that DuPont had acquired controlling interest in GM, and the court ordered DuPont to sell its shares severing the relationship. Conglomerate mergers have generally been permitted.

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