Prepared & Presented By CA.

Shrenik Chhabra
M. Com, ACA
Partner
ANS & Associates
Chartered Accountants

CA. Shrenik Chhabra

 Mergers
A merger is a
transaction that results
in the transfer of
ownership and control
of a corporation.

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 3 Types of Mergers
Economists distinguish between three
types of mergers:
1. Horizontal
2. Vertical
3. Conglomerate

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Horizontal mergers

A horizontal merger results in the consolidation of

firms that are direct rivals—that is, sell substitutable
products within overlapping geographic markets.
Examples:
1. HP-Compaq,
2. Kingfisher-Go-Air,
3. Jet Airways-Sahara,
4. HDFC-Centurian Bank of Punjab

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Vertical Mergers
The merger of firms that have actual or
potential buyer-seller relationships

Examples:
1. Larson & Trubo-Ultratech
2.

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Conglomerate mergers
Consolidated firms may sell related products,
share marketing and distribution channels and
perhaps production processes; or they may be
wholly unrelated.

•Product extension conglomerate mergers involve firms that

sell non-competing products use related marketing channels
of production processes.
Examples:
1. Tata-Land rover & Jaguar
2. Tata-Tetley
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•Market extension conglomerate mergers join together firms
that sell competing products in separate geographic markets.

Examples:
1. Tata-Cores( Asia & Europe)
•A pure conglomerate merger unites firms that have no
obvious relationship of any kind.
Examples:
1. Merger Strategies of Ranbaxy Pharma

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Anticompetitive Effects of Mergers
Issue: When and how are mergers welfare-reducing (that is, result
in a post-merger decrease in TS ?
•Horizontal mergers eliminate sellers and hence reshape market
structure. Recall that the structuralists believe that
market structure is the primary determinant of market performance.
•Mergers may result in market foreclosure. For example, the
Justice Department feared that Microsoft's proposed acquisition of
Intuit would result in a foreclosure of the market for personal
finance software.
• Mergers may diminish potential competition. For example, the
acquisition of Clorox by Proctor & Gamble eliminated P&G as a
prime potential entrant in the market for household bleach.

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 Horizontal mergers have a direct
impact on seller concentration.
And has its own benefits for
organization as well as for the
customers. Hence the potential to
diminished competition is clear to
see.

Most of the times merger news which we often found in

market are kind of Horizontal Mergers.

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 Welfare Reducing
It would seem at first blush that horizontal mergers
would invariably be welfare-reducing. However, if the
consolidation of direct rivals leads to greater cost
efficiency, then a horizontal merger could (in theory at
least) be welfare-enhancing.

This phenomena is introduced by Oliver willaimson.

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Welfare trade-offs of a horizontal merger

Oliver Williamson contends that

a horizontal merger can be
welfare-enhancing, even if
the post-merger market
structure is monopolistic. Why? Because
the merger may result in greater
technical/cost efficiency.

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 The efficiency
gain from the merger
Price
is indicated
by the shift
from AC to
AC’ If area A2
PM exceeds
area A1, the
A1
PC AC merger
A2 increases the
total
AC’
surplus (TS)
D

0 QM QC Quantity

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Measuring the Welfare Tradeoffs
Let A1 be computed by
If A1 = A2, 1
the merger is A1  (P )(Q)
2
welfare-neutral
Let A2 be computed by:

A2  AC  QM

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Vertical and conglomerate mergers do
not affect market structure (e.g.,
seller concentration) directly. As you
will discover subsequently, these
types of mergers mergers can
nevertheless have anticompetitive
consequences.

CA. Shrenik Chhabra

Thanks to all of you for listening me.
Thanks god for inspiring me and to
motivate me to doing hard work for my
dream job.

CA. Shrenik Chhabra