1) Distinguish the difference between Horizontal integration, Vertical Integration and Conglomeration. Identify two examples (3pts, 2 pts)

2)     Provide FOUR reasons for business combination. Give an example of two well known ones   ( 2 pts, 2 pts )

3)     Distinguish between a merger, an acquisition, and a consolidation.

 (3 pts.)

 

1.Horizontal Integration is the process whereby companies acquire another operating entities that are in the same industry. This is done in order to increase production. On the other hand, vertical integration is when a company acquires another business, not necessarily in the same industry with the company, that operates before of after them in the supply chain. As to conglomeration, it is the merging of two companies that are not in the same industry. This is done in order to diversify their businesses or increase their market share.

• An example of? horizontal integration is the merging of two companies that are engaged in producing engines. however, the other one is for engines of trucks and the other one is for the engines of SUVs.
• In vertical integration this is illustrated by the acquisition of a company of its supplier company.
• For conglomeration, a company engaged in banking services merged with a company engaged in construction services.

2.Some reasons for business combinations are: for diversification of business operating by creating new products; for value creation of the company where the upon merging, this increases the wealth of the company; to eliminate competition thereby savings costs for projects allotted for advertising and promotion; and for economies of scale whereby the merging of the two companies results to more resources that will be used in the scale of operations.

An example is the merging of companies engaged in the same business industry. This will create a new company that will have more resources that will be used in its operations compared. thereby, economies of scale will be obtained through the efficient utilization of the resources.

Another example, the merging of companies engaged in the same industry will also save the companies in advertising and promotion costs. Thereby, the allotted resources for advertising and promotion may be diverted to their operations.

3.Merger occurs when two companies form a new company.

Acquisition occurs when a company acquires a significant share in another company thereby giving the company a control over the another entity.

Consolidation is the process whereby the financial statements of a subsidiary company is combined with the parent company.