Match the following mergers with a merger type and, for each, explain why

Types: Horizontal, vertical, conglomerate

1. Microsoft buys a sailboat maker

2. Delta airlines buys Southwest arilines

3. Vons grocery buys Ralphs grocery

4.  McDonalds buys a potato farm

 

A merger is the freewill amalgamation of two companies existing legally into a single entity. Mergers exist to grow revenues by increasing the market share, growing profits, expanding to new regions, or to reduce the cost of operation. This voluntary action benefits both companies and the new share capacity of the new entity are distributed amongst the pre-existing members of the original firms. Companies may merge at different levels and for various purposes to control their output and profitability. Mergers may be vertical, horizontal, or conglomerate. Below are company mergers each matched with the merger types.

1. Microsoft buys a sailboat maker-Conglomerate merger

2. Delta airlines buys Southwest airlines-Horizontal merger

3. Vons grocery buys Ralphs grocery-Horizontal merger

4.  McDonalds buys a potato farm-Vertical merger

Step-by-step explanation

Conglomerate mergers

These are mergers that occur in companies occupying different business or geographical niches. These firms may be totally unrelated and maybe a form of gaining a larger market base through selling other products different from what they produce. ("Firms: Horizontal, vertical and conglomerate integration," 2015) Microsoft Corporation deals in the production of computer software applications and systems. They also publish multimedia titles, books, and produce personal computers. This is a different niche from a sailboat maker who specializes in the production of boats and other related products hence making it a conglomerate merger.

Horizontal mergers

This is a fusion of two or more businesses occupying similar market niches as a way of increasing their economies of scale or reducing competition. ("Understanding horizontal mergers," n.d.) This is common in markets with fewer firms that deal with related goods and services. Delta and Southwest airlines are companies offering flight services while Von and Ralphs sell identical grocery products. These firms are at the same market operation level and both have a slightly different market share. Each attempt by the above companies to come together represents horizontal mergers.

Vertical mergers.

This involves the union of two different companies that sell products in the same chain of supply. They may be selling different parts of a product and decide to consolidate cost reduction. McDonalds is a global food retailer business and the leading restaurant that sells hamburgers. ("GRIN - The service concept of McDonald's," n.d.) Its unification with a potato farm is a type of vertical merger to increase the economies of scale in the food business.