An amalgamation or joining of two or more firms into an existing firm or to form a new firm. A merger is a method by which firms can increase their size and expand into existing or new economic activities and markets. A variety of motives may exist for mergers: to increase economic efficiency, to acquire market power, to diversify, to expand into different geographic markets, to pursue financial and R&D synergies, etc. Mergers are classified into three types:
Horizontal Merger: Merger between firms that produce and sell the same products, i.e., between competing firms. Horizontal mergers, if significant in size, can reduce competition in a market and are often reviewed by competition authorities. Horizontal mergers can be viewed as horizontal integration of firms in a market or across markets.
Vertical Merger: Merger between firms operating at different stages of production, e.g., from raw materials to finished products to distribution. An example would be a steel manufacturer merging with an iron ore producer.
Vertical mergers usually increase economic efficiency, although they may sometimes have an anticompetitive effect.
Conglomerate Merger: Merger between firms in unrelated business, e.g., between an automobile manufacturer and a food processing firm.
Source: OECD
In an earlier post, of 2 December 2014, in which I reviewed the Competition and Markets Authority’s (“CMA”) draft annual plan for 2015/2016, I observed that (as of that date) the CMA had not, since assuming the functions of the Office of Fair Trading and Competition Commission on 1 April 2014, opened a Phase II…
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