Conglomerate Mergers

Abstract: Conglomerate merger is the merger of two firms that have no related markets or products. There are two types of conglomerate mergers. In this paper we will explain conglomerate merger in detail with some facts.

When two companies having a completely different business activities are set to merge then that will be called conglomerate merger. If, as an outcome of acquisitions a conglomerate becomes large then the performance of the new firm will be suffered that had been seen during the 1960’s conglomerate merger phase.

In a vertical merger, the companies are located at different production stages while one firm produces an input that is used by the other. After merger, a single firm will now perform at both stages of production.

The effect of concentrate merger may be negative if the acquired company is in a leading position in a scattered market with some entry barriers. But the benefit of concentrate merger is that the risks across various industrial sectors can be diversified.
Reasons Behind Concentrate Merger:
Many firms will be willing to merge in order to increase their market share.
Some firms merge for diversification and also to minimize their risks.

Types of Concentrate Merger:
Concentrate mergers are of two types.
Pure Conglomerate Merger: In this kind of merger, the merging firms are completely different. In fact, they don’t have any business ties in common.
Mixed Conglomerate Mergers: It involves companies that have something in common and are actively looking for market or product extensions.

Real Time Example: In the 1960s, the ITT Corporation spent a huge amount of money to acquire more than 150 companies so that it could demolish the status of a single product company.

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Last Updated on : 29th July 2013