Conglomerate Mergers
Conglomerate mergers occur when companies that operate in different industries or have unrelated business activities merge to form a single entity. This type of merger allows companies to diversify their operations and reduce risk by entering new markets. Conglomerate mergers can also lead to increased economies of scale and potential synergies between the different business units.
5 Key excerpts on "Conglomerate Mergers"
eBook - ePubM&A and Corporate Consolidation
A Study of the Role of Competitive Government Behavior
- Fengrong Wang, Changkun Sun(Authors)
- 2020(Publication Date)
- Palgrave Macmillan(Publisher)
...Through conglomerate merger, enterprises can reduce the risk of long-term operation of single industrial products, increase their product categories, achieve resource complementarity, implement diversified operations, and realize rapid growth and expansion of enterprises. However, the impact of conglomerate merger on enterprises is relatively strong. If an enterprise is unable to achieve the post-merger integration in a short period of time, the merger is not conducive to the coordinated development of the enterprise. Another common definition of conglomerate merger is slightly different from the definition above. It refers to conglomerate merger as the merger between enterprises that are neither competitors nor actual or potential customers or suppliers (Hu Changli 2003). In essence, the two definitions are the same, both of which exclude M&A that will establish connections in the same industrial fields and links on the supply chain. 7.2.1.2 Industrial Motivations for Conglomerate Merger Many studies have given theoretical explanations for the motivation of conglomerate merger. Williamson, the new institutional economist, is an outstanding representative of M&A efficiency theory. He believes that conglomerate merger can form an “internal capital market” and play its roles of incentives and flow regulation. Weston et al., starting from the concept of “organizational capital”, believe that conglomerate merger can reduce the internal capital costs and realize financial synergies for enterprises. Considering the topic of this chapter, we will first analyze the industrial drivers and industrial effects 3 of conglomerate merger, and secondly examine the factors of government conducts in the transactions. 1. Industrial effects The theory of new industrial organization holds that an industry has produced industrial effects if it has a higher excess profit margin and the enterprises in the industry enjoy greater market power and excess profits...
eBook - ePubOrganizational Psychology of Mergers and Acquisitions
Examining Leadership and Employee Perspectives
- Camelia Oancea, Caroline Kamau(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
...An example is organization A, a hamburger chain, merging with organization B, also a hamburger chain. This creates organization C, a hamburger chain without the competition between A and B. An example is the £5 billion merger between two online gambling companies, Betfair and Paddy Power, to create a new company called Paddy Power Betfair (Press Association, 2015). This can be classed as a horizontal merger rather than a market extension merger because of the similarity between the two organizations in their geographical reach and type of consumers. 5. Conglomerate Mergers When two organizations produce unrelated products and work in unrelated markets, they engage in a type of merger called a conglomerate merger. In a pure conglomerate merger, the two organizations are entirely different. For example, organization A is a restaurant chain merging with organization B, a fashion chain, to create organization C that operates in both catering and clothing. In a mixed conglomerate merger, the two organizations have the opportunity to extend their products or markets. An example is a restaurant chain merging with an organization that sells baked goods to supermarkets, creating an organization that can sell the baked goods within the restaurants and also advertise the restaurants to consumers who are buying the baked goods from supermarkets. An example of a conglomerate merger is that between Carphone Warehouse, which specialised in selling mobile phone products and services, with Dixons, which specialised in selling home electrical products, to create Dixons Carphone, a chain of stores that sell both sets of products and services (Garside & Farrell, 2014). Understanding different types of acquisitions Whereas mergers can be neatly categorised into one of five types, acquisitions are often far more complex, and best categorised in terms of the extent to which a subsidiary organization is subsumed within its new parent organization...
eBook - ePubStrategy, Structure and Corporate Governance
Expressing inter-firm networks and group-affiliated companies
- Nabyla Daidj(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...By building conglomerates, companies intended to benefit from growth opportunities in new product markets unrelated to their primary business. This allowed them to enhance value, reduce their earnings volatility, and to overcome imperfections in external capital markets. The third wave peaked in 1968 and collapsed in 1973, when the oil crisis pushed the world economy into a recession” (Martynova, Renneboog, 2008, p. 2150). Conglomerate Mergers were also supposed to be a strategy to protect firms from anti-trust laws and related provisions. The anti-trust legislation was further strengthened with the Celler-Kefauver Act, passed in 1950, which reformed and amended the Clayton Antitrust Act of 1914 in order to restrict anti-competitive mergers. Several conglomerates composed of many unrelated businesses were established during this period. Lazonick and O’Sullivan (2000, p. 16) referred to this period as “the conglomeration mania of the 1960s, from the early 1970s”. Many companies tried to diversify their activities and revenues in order to reduce their risks. During this period, capital markets were not hostile to highly diversified companies; General Electric, which extended its strategic business units, is an example of this. New organizational structures emerged as a response to large firms’ strategy of diversification. The multidivisional structure, often known as the M- F orm, has been analysed by Alfred Chandler in his 1962 book, which focuses on theories of organization and management. This M- F orm differed from previous organizational practice and structure. The other ways to organize large organizations were mainly the U-Form (U stands for unity) and the H-Form (H stands for holding, this form is called also conglomerate). The divisions in an M- F orm company are organized by brand or geographical region and not by their function...
eBook - ePubAn Insight into Mergers and Acquisitions
A Growth Perspective
- Vinod Kumar, Priti Sharma(Authors)
- 2019(Publication Date)
- Palgrave Macmillan(Publisher)
...Merger of a company with its raw material manufacturer/supplier is known as Backward Integration, whereas a merger with the distributor or retailer is termed as Forward Integration. Reliance Industries Ltd. slew of activities from foraying into refinery and exploration from textiles, polyester to petrochemical is a classic example of backward integration where the downstream companies got merged with their upstream companies. 1.3.3 Co-generic Merger In this type of merger, companies operating in a similar line of industries but offering different products, generally, complementary in nature, tend to merge as a strategic measure to increase the profitability of both the companies. For example, merger of Procter & Gamble and Gillette in 2005 is a co-generic merger. P&G is largely a consumer goods company, and Gillette was operating in men’s personal care market. The product portfolios of two companies were complimentary. The merger created one of the world’s biggest consumer product companies. 1.3.4 Conglomerate Merger In this type of merger, companies which are not related to each other and are operating in different segments decide to merge. For example, merger between L&T and Voltas, operating in different line of businesses, is a conglomerate merger. 1.3.5 Domestic Merger These horizontal, vertical, or Conglomerate Mergers or acquisitions may take place on the domestic turf known as domestic merger. The acquisition of Air Sahara by Jet Airways in 2007 is the perfect example of a domestic merger. 1.3.6 Inbound Merger An inbound merger can take place when companies of foreign origin merge or acquire the companies of domestic origin. Daiichi Sankyo Co. Ltd. acquiring the entire stake of Ranbaxy Laboratories Ltd. is an example of inbound merger...
eBook - ePubMaximizing Corporate Value through Mergers and Acquisitions
A Strategic Growth Guide
- Patrick A. Gaughan(Author)
- 2013(Publication Date)
- Wiley(Publisher)
...These companies became some of the largest companies in the United States. Examples include ITT, LTV, Litton Industries, Gulf and Western, Tenneco, Teledyne, and many others. Conglomerates are the extreme form of diversification in that the company includes many businesses that often have little in common with each other. The track record of the conglomerates of the 1960s is not very impressive. The market turned down by the end of the decade and investors soured on the conglomerates. In addition, the economy slowed dramatically in the 1970s and fell into a deep recession. The conglomerates responded with asset sales and many began the process of deconglomerization. MODERN-DAY U.S. CONGLOMERATES While many of the huge conglomerates of the 1960s have been dissembled, we still have several very big and largely successful conglomerates operating today. Perhaps the leading example is GE—formerly General Electric. Contrary to what the original name implies, for many years now GE has no longer been merely an electronics-oriented company. Through a pattern of acquisitions and divestitures, the firm has become a diversified conglomerate with operations in insurance, financial services, television stations, plastics, medical equipment, and so on. During the 1980s and 1990s, at a time when the firm was acquiring and divesting various companies, earnings rose significantly. The market responded favorably to these diversified acquisitions by following the rising pattern of earnings. However, this all came to an end with the subprime crisis, which left the company with large losses in its capital division. Since then the company has been trying to navigate the difficult waters of a serious recession in the United States and a weak recovery while at the same time dealing with a recessed European economy...
