A merger of two companies which are involved in different types of business. Among the most prominent are the desire to expand into new markets and thereby reduce. Oecd glossary of statistical terms conglomerate merger. Given that most mergers do not harm compe market is defined determines whether a par tition, the analysis. The purpose of this paper is to outline the applicability of. Pdf takeover motives during the conglomerate merger wave.
Merger is a process in which two or more existing companies voluntarily combine together to function as one new company. Conglomerate merger financial definition of conglomerate. Conglomerate merger is helpful for companies to extend their corporate territories, to gain synergy, expand their product range, etc. As a result conglomerate mergers only create anticompetitive effects under certain conditions. Which term is used to describe any merger depends on the purpose of the transaction, and the end relationship between the companies.
Conglomerate mergers can serve various purposes, including extending corporate territories and extending a product range. There are five commonlyreferred to types of business combinations known as mergers. Conglomerate definition and meaning collins english. Conglomerate merger a merger in which the merging firms are in completely different industries. When two firms having nothing in the common merge, it is termed as. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. A conglomerate is a corporation that is made up of a number of different, seemingly unrelated businesses. A conglomerate is a firm or business enterprise having different economic activities in different unrelated industries. Conglomerate merger a merger involving two or more firms that are in unrelated businesses.
At the time, the newly merged company dealt in construction, building supplies. Conglomerate definition of conglomerate by merriamwebster. A conglomerate merger is also likely to produce synergies for the combining entities. Horizontal integration is the merger of two firms at the same stage of production, producing the same product.
Conglomerate acquisitions range from shortterm joint ventures to complete mergers. Both companies involved in the merger may have common technology, markets, or production processes. In a conglomerate, one company owns a controlling stake in a number of. The firms can belong to different industries or different geographic areas. A conglomerate merger is a situation in which two or more firms from strategically unique areas of business unite. Congeneric mergers involve companies in the same industry, but with different business lines. It can be further divided into pure and mixed conglomerate mergers. There are two types of conglomerate merger pure and mixed. Part i will discuss the various definitions of a conglomerate merger. Conglomerate mergers involve the combination of corporations involved in business activities that are completely unrelated. The analysis of conglomerate effects in eu merger control by damien j. A conglomerate merger is when two companies with unrelated business activities or in diverse geographical areas come together to form a larger company.
A conglomerate is a large business firm consisting of several different companies. Financial conglomerates supervision is a process of continued discovery, assessment, and response. The acquired firm in a congeneric merger is either an extension of a product line or a market related to the acquiring firm. A simple definition of conglomerate merger and its types. As a result conglomerate mergers only create anticompetitive effects. Decisions on conglomerate mergers are taken within a borderline area of merger control which places great demands on competition analysis. One example of a conglomerate merger was the merger between the walt disney company. This situation comes about as a result of increased sales and earnings for the combined business each business would not have obtained on its own.
Conglomerate mergers and the antitrust laws semantic scholar. A conglomerate merger is a merger between firms in unrelated business, e. Conglomerate article about conglomerate by the free. When theyve signed all the necessary papers, they are said to have entered into a conglomerate merger. Perform judicious exercise of judgment in interpreting situations based on substance, not form. Conglomerate mergers and the curse of bigness semantic scholar. See page 34 for a definition of conglomerate merger, measuring the surge of mergers, business week, no. For most of this article, a takeover is defined to be a diversification.
Neven graduate institute of international studies, geneva and cepr december 2005 forthcoming in advances in the economics of competition law, mit press i would like to thank lh. Definition of conglomerate merger, definition at economic. A merger is a common business exit strategy as well as a critical growth tool. The horizontal dimension was present because both firms competed in the jet engines market. The complementarities featured in conglomerate mergers displaying portfolio effects extend beyond classic economic. Adverse effects of conglomerate mergers may be examined under two main topic. A conglomerate acquisition is a merger of firms that are involved in economically unrelated business activities.
Conglomerate firms may emerge through mergers and acquisitions andor investments across a diverse range of industries for a variety of reasons such as minimization of risk, increased access to financial and management resources, and more efficient allocation of. Two companies may complete a conglomerate merger for any number of reasons. Three main types of integration in external growth of firm size are as follows. So defined, it may be difficult to imagine a truly conglomerate merger. Contemporary theories on the rise of conglomerate mergers in. An example of a conglomerate merger would be an athletic shoe company merging with a soft drink company. Patterson is the author of a book to be published shortly by indiana universitys bureau of business research. A conglomerate merger is a merger between firms that are involved in totally unrelated business activities. By defining as conglomerate any merger in which no clear horizontal or vertical link is found, probably an upward bias in the level of conglomera tion is being. The consolidation under a single ownership of two separatelyowned businesses, in totally, completely separate industries. Mavroidis for comments on a previous version of this paper. Conglomerate mergers were commonplace in the 1960s, but are less prevalent nowadays. During this time, corporate america went through the conglomerate merger. A reexamination of the conglomerate merger wave in the.
The definition of conglomerate merger has been a difficulty since the words were first used. Oecd glossary of statistical terms conglomerate definition. Sometimes two companies of two different business natures decide to get together and merge. It is possible that conglomerates are being created because businessmen are unwilling to make heavy commitments. Conglomerate mergers financial definition of conglomerate. Go beyond the formality of rules to identify and respond to risks. Conglomerate mergers generally involve the union of two companies that have no type of common interest, are not in competition with any of the same competitors, and do not make use of the same suppliers or vendors. An example is the general electric gehoneywell merger proposed in 2001. Since 1965, over 85% of all assets acquired from mediumsize companies were acquired in conglomerate acquisitions. The value of diversification during the conglomerate. Conglomerate merger meaning in the cambridge english.
Patterson is an associate professor of market ing at the graduate school of business, indiana university. An internal capital markets view of conglomerate mergers. Conglomerate merger definition, types and examples. Conglomerate definition is made up of parts from various sources or of various kinds. Glenn hubbard and darius palia abstract one possible explanation for bidding firms earning positive abnormal returns in. With a pure conglomerate merger, the merging firms have absolutely nothing in common and are simply trying to expand into new business areas. Vertical and conglomerate effects european commission. Part ii will examine a feature of the conglomerate entity that helped to. The difference between conglomerate mergers and horizontal mergers is that no actual competitor is eliminated.
A conglomerate merger is any merger that is not horizontal or vertical. The analysis of conglomerate effects in eu merger control. Essentially, the conglomerate merger usually brings together two companies with no connections whatsoever under one corporate umbrella. One of the more recent examples was the merger between the walt disney company and abc tv network in the us in the 1990s. As per the definition of georg ios 20 1 1 in a merger, two or more firms approach together and become a single firm while in acquisition big. Conglomerate merger advantages and disadvantages of. This definition would appear to exclude vertical mergers complements repackaged for final users which involve supplier or customer relationships as well as. Companies that did a conglomerate merger bizfluent. A conglomerate merger may involve two companies which are, among other. There are many ways for this to benefit the companies, such as sharing of assets and reducing business risk, but can also become a risk to the company if the new company gets too large or if it isnt able to successfully blend the two businesses. Meaning, pronunciation, translations and examples log in dictionary. For example, the merger of two car producers or two.