Table of Contents
Definition of Merger
A merger is an agreement undertaken to unite two prevailing organizations into one new entity. There are numerous reasons why a company chooses to unite with another company. The primary reasons for it being to expand the company’s reach, gain market share or expand into new segments. The company conducts these activities to please the shareholders.
After gaining an insight into the meaning of mergers, let’s have a look at the types of mergers.
Types of Mergers
The five main types of mergers are as follows:
- Vertical Merger
- Horizontal Merger
- Market Extension Merger
- Product Extension Merger
- Conglomerate Merger
Let us see few examples of merger to understand the concept better.
Examples of Merger
Disney and Pixar
The merger of the very famous Walt Disney and Pixar was a much sought out for and a match made in cartoon heaven. Disney released almost all of Pixar’s movies however the contract was about to run out. Therefore the companies opted for the merger in 2006. The merger benefitted both the companies by giving them some of the highest grossing movies such as Frozen and Tangled.
Exxon and Mobil
Exxon and Mobil signed an $81 billion agreement in 1999 giving birth to ExxonMobil. Post the merger, ExxonMobil became the largest company in the world heading towards monopolization. ExxonMobil is the strongest leader in the oil market internationally and proudly boats dramatic earnings. ExxonMobil is soon heading for another merger in the coming years.
Sirius and XM Radio
Satellite Radio began in 1997 with only two licenses. The condition for the issue of two licenses being that either of the companies could not acquire the other. However, in July 2008, Sirius Satellite Radio and XM radio decided to join forces. Proper paperwork and investigations led to the approval of the merger. This eventually led to massive increases in the revenue of both the companies and thereby giving them a major hold on the market share.
A merger between two entities into a single new entity can have a number of benefits. The new entity holds an increased market share which thereby leads to the firm gaining higher economies of scale and thus higher profits. More importantly, a merger reduces competition in the market and leads to higher prices from consumers.1–3