Vertical and Horizontal Mergers as Acquisition Strategies

Mergers and Acquisitions

Contents
Question 2........................................................................................................................................3
Critically assess Vertical mergers and Horizontal mergers as acquisition strategies:............3
Question 4........................................................................................................................................7
Outline and discuss the alternatives to hostile takeovers:......................................................7
REFERENCES..............................................................................................................................11

Question 2
Critically assess Vertical mergers and Horizontal mergers as acquisition strategies:
Vertical Mergers: A vertical merger implies to form of merger wherein two or more firms
performing under separate supply chain operations for common goods or services. One of two
businesses participating under vertical integration/merger has a varying products or services but
is at distinct phases of the manufacturing process. Although, both firms are compelled for the
processing of finished products. Vertical integration/merger is related concept whereby an
organisation applies its activities to other stages of supply chain. Conversely, this could be
managed directly and therefore does not necessitate a merger between firms (Xie, Reddy and
Liang, 2017).
The synergies may involve structural synergies, that can lead to changes in the working
procedures of the two firms, such as retailer and the manufacturer. The deal can also extend its
market by encouraging manufacturer to sell tyres to rival automakers – thereby raising revenues
(Bonaime, Gulen and Ion, 2018). Financial synergies that may require exposure to credits or
funding by one of firms may be realised. For instance, a retailer may have debts on the balance
sheet contributing to restricted access by a financial institution to credit facilities.
A prominent vertical integration instance was 1996 merger between Time Warner a large
cable provider, and Turner Organization, a major broadcasting organization famous for CNN,
the TNT, Cartoon Network including TBS networks. The merger among Time Warner &
the AT&T (T: NYSE) was completed in year 2018, although not without intensive scrutiny.
Since about February 2019, when announced by Associated Press, Federal Court of Appeal
approved AT&T's acquisition of the Time Warner, denying Trump administration's argument
that around $81 billion transaction will hurt customers and limit competition
in Television industry. As per financial specifics of the merger presented on AT&T's homepage,
the merged company will generate improved financial synergy effects of around $2.5 billion.
Costs synergies of around $1.5 billions and sales synergies of $1 billions are anticipated by end
of 3 years after the completion of this deal (Salop, 2017).
One apparent advantage is that in vertical mergers enable companies to lower costs
because they already dominate supply chain. The willingness to lower costs gives companies a
massive leg over rivals. Independence from vendors often offers an incentive to deliver better