PM0018 [Contracts Management in Projects] Set1 Q5

Q.5. Write a short note on the following types of mergers:

a. Product extension merger

b. Conglomeration

c. Horizontal merger 

d. Purchase merger 

e. Consolidation merger 

Ans:

a. Product Extension Merger

According to definition, product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits.

Example of Product Extension Merger

The acquisition of Mobil ink Telecom Inc. by Broadcom is a proper example of product extension merger. Broadcom deals in the manufacturing Bluetooth personal area network hardware systems and chips for IEEE 802.11b wireless LAN.

Mobil ink Telecom Inc. deals in the manufacturing of product designs meant for handsets that are equipped with the Global System for Mobile Communications technology. It is also in the process of being certified to produce wireless networking chips that have high speed and General Packet Radio Service technology.

Market-extension merger: This happens between companies that sell the same products in  different markets. A market-extension merger allows for the market that can be reached to become larger and is the basis for the name of the merger. 

b. Conglomeration
This happens between companies that have no common business areas. 

c. Horizontal merger

A horizontal merger is when two companies competing in the same market merge or join together. This type of merger can either have a very large effect or little to no effect on the market. When two extremely small companies combine, or horizontally merge, the results of the merger are less noticeable. These smaller horizontal mergers are very common. If a small local drug store were to horizontally merge with another local drugstore, the effect of this merger on the drugstore market would be minimal. In a large horizontal merger, however, the resulting ripple effects can be felt throughout the market sector and sometimes throughout the whole economy.

Large horizontal mergers are often perceived as anticompetitive. If one company holding twenty percent of the market share combines with another company also holding twenty percent of the market share, their combined share holding will then increase to forty percent. This large horizontal merger has now given the new company an unfair market advantage over its competitors.

Horizontal merger: This happens when two or more companies who are in direct competition and share the same product lines and markets merge. 

d. Purchase mergers
This occurs when one company takes on another. The purchase is made with
cash or through the issue of some kind of debt instrument. 

e. Consolidation Merger

Consolidation or amalgamation is the act of merging many things into one. In business, it often refers to the mergers and acquisitions of many smaller companies into much larger ones. In the context of financial accounting, consolidation refers to the aggregation of financial statements of a group company as consolidated financial statements. 


The taxation term of consolidation refers to the treatment of a group of companies and other entities as one entity for tax purposes. Under the Halsbury's Laws of England, 'amalgamation' is defined as "a blending together of two or more undertakings into one undertaking, the shareholders of each blending company, becoming, substantially, the shareholders of the blended undertakings. There may be amalgamations, either by transfer of two or more undertakings to a new company, or to the transfer of one or more companies to an existing company". Thus, the two concepts are, substantially, the same. However, the term amalgamation is more common when the organizations being merged are private schools or regiments.

Consolidation mergers: This occurs when two or more companies join to become a completely new company.