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What is merger? :

What is merger? A merger in business or economics refers to the combination of two companies into one larger company. Such actions are commonly voluntary and often involve a stock swap. In many instances a merger resembles a takeover but often results in a new company name (often combining the names of the original companies) and in new branding.

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A Merger is a Strategy through which two firms agree to integrate their operations on a relatively co-equal basis. There are a few true mergers, because one party is usually dominant in regards to market share or firm size. E.g. DaimlerChrysler AG( equal merger), but Daimler-Benz was the dominant party in the automakers’ transaction. Chrysler wouldn’t allow the business deal to be completed unless it was termed a merger.

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A merger takes place when two companies decide to combine into a single entity. One of the most oft cited reasons is to achieve economies of scale. Efficiency is the key to achieving economies of scale, through the sharing of resources and technology and the elimination of needless duplication and waste.

Types of Mergers:

Types of Mergers Horizontal Merger, Conglomeration, Vertical Merger, Product-Extension Merger and Market-Extension Merger.

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Horizontal Merger: refers to the merger of two companies who are direct competitors of one another. They serve the same market and sell the same product. A merger between Coca-Cola and the Pepsi beverage division. if McDonald's were to merge with Burger King. to create a new, larger organization with more market share. the merging companies' business operations may be very similar, there may be opportunities to join certain operations, such as manufacturing, and reduce costs.

Conglomerate mergers:

Conglomerate mergers occur when two organizations sell products in completely different markets. There may be little or no synergy between their product lines or areas of business. The benefit of a conglomerate merger is that the new, parent organization gains diversity in its business portfolio. E.g. A shoe company may join with a water filter manufacturer in accordance with a theory that business would rarely be down in both markets at the same time.

Market-Extension Merger: :

Market-Extension Merger: occurs between two companies that sell identical products in different markets. It basically expands the market base of the product.

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The main benefit of a market extension merger is to help two organizations that may provide similar products and services grow into markets where they are currently weak. e.g. instead of trying to establish a retail presence in Europe, Wal-Mart could merge with a European retailer that is already successful and has good brand recognition. Even though the two organizations are both big-box retailers selling similar products, they have found success in different parts of the world. As a single organization, they have a diverse, global presence.

Vertical Merger: :

Vertical Merger: A vertical merger joins two companies that may not compete with each other, but exist in the same supply chain. E.g. An automobile company joining with a parts supplier would be an example of a vertical merger. Such a deal would allow the automobile division to obtain better pricing on parts and have better control over the manufacturing process.

Product-Extension Merger: :

Product-Extension Merger: is executed among companies, which sell different products of a related category. They also seek to serve a common market. This type of merger enables the new company to go in for a pooling in of their products so as to serve a common market, which was earlier fragmented among them.

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