Conglomerate Merger

3 Key excerpts on "Conglomerate Merger"

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  Federal Antitrust and EC Competition Law Analysis

  • Femi Alese(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Chapter 16 Conglomerate and Vertical Mergers

  Unlike horizontal mergers, conglomerate and vertical mergers do not result in the elimination of direct rivals on the same level of the supply chain, and therefore could not increase market concentration. Different theories of injury to competition should therefore apply to these transactions. The purpose of this chapter is to address competition/antitrust law concerns relating to vertical and Conglomerate Mergers and acquisitions, particularly through the analysis of case law, relevant Guidelines and enforcement agencies’ approaches to these types of mergers.

  I. Conglomerate Mergers

  Conglomerate Mergers are not categorized as either horizontal or vertical, but they usually involve firms in unrelated lines of business merging their operations in a new entity. This type of merger, however, can also involve firms trading in related products (product extension or range effects), or operating in the same areas of business but in different geographic markets (market extension acquisitions). The competition concerns over Conglomerate Mergers primarily relate to the ability of the parties to enter the market independently on their own – that is, by not independently engaging in such an internal expansion, the combined entity is regarded as posing a significant threat of eliminating potential competition in its new markets (particularly when it enters them through amalgamation with a major supplier already in that market).1

  Where an acquiring firm remains on the fence or does not enter the market de novo, unless an opportunity for profit emerges, the threat of entry is generally classified as perceived.2 The gist here is that entry might be kept in abeyance because of factors such as firms already in the market engaging in limit pricing. Where, on the other hand, firms within a market are aware of the threat of de novo entry by a firm outside that market, the latter would be regarded as posing an ‘actual’ potential threat to the former.3

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  Organizational Psychology of Mergers and Acquisitions

  Examining Leadership and Employee Perspectives

  • Camelia Oancea, Caroline Kamau(Authors)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  When two organizations produce similar products reaching the same consumer market and they have equivalent market shares, they engage in a type of merger called a horizontal merger. 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. To help you broadly understand what this means, we have created a new method of classifying acquisitions in three ways in Figure 1.2 . We have applied the five common ways of defining mergers, which we discussed in the previous section, to acquisitions while creating a framework that can help you broadly define the extent

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  Maximizing Corporate Value through Mergers and Acquisitions

  A Strategic Growth Guide

  • Patrick A. Gaughan(Author)
  • 2013(Publication Date)
  • Wiley

    (Publisher)

  Companies made numerous acquisitions across many different industry categories to form highly diversified companies called conglomerates. 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. As a result, many have questioned the company's conglomerate model and the benefits of being in so many diversified industries.

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