Question

In the \(1950 \mathrm{~s}\) and \(1960 \mathrm{~s}\) the predominant form of merger was the __________merger. (LO4) a) horizontal c) conglomerate b) vertical d) diversifying

Short answer

The predominant form of merger in the 1950s and 1960s was the \(conglomerate\) merger.

Step-by-step solution

Understanding Mergers

There are various types of mergers and acquisitions that businesses can undergo, and they differ on the basis of the relationship between the companies involved. Here are brief definitions of the four types of mergers mentioned in the exercise: 1. Horizontal Merger: A merger between companies operating in the same industry, typically sharing similar products and services, as well as a customer base. 2. Vertical Merger: A merger between companies operating at different levels in the supply chain of a specific industry, often to control costs and achieve synergies. 3. Conglomerate Merger: A merger between companies operating in completely unrelated industries, often to diversify risk and revenue streams. 4. Diversifying Merger: A merger between companies operating in different, but complementary domains to expand their offerings.

Identifying the Predominant Merger

Considering the historical context of this exercise and examining different mergers that took place during the 1950s and 1960s, the predominant form of merger during that period was the conglomerate merger. This was due to the companies wanting to diversify their operations to minimize risk and broaden their revenue sources in the post-war era. Therefore, the correct answer is: c) Conglomerate

Key concepts

Horizontal Merger

A horizontal merger is a business consolidation that occurs between firms who operate in the same industry. This type of merger is common among companies with similar products or services and aims to reduce competition, increase market share, and achieve economies of scale.

For instance, if two pharmaceutical companies that produce similar drugs merge, this is considered a horizontal merger. Such a consolidation can lead to more efficient operations by combining production facilities, reducing costs, and sometimes leading to more innovative product development through combined research and development efforts.

• Reduces competition
• Increases market share
• Aims for economies of scale

Vertical Merger

A vertical merger occurs between companies that operate at different levels within the same supply chain of an industry. This type of merger is usually carried out to control more parts of the supply chain process, which can decrease costs and improve supply chain efficiency.

Consider a car manufacturer merging with a tire company; this would be a vertical merger as the manufacturer is upstream in the supply chain while the tire company is a downstream operation. Such mergers can tighten production timelines, improve logistics, and sometimes ensure quality control of necessary components.

• Control over supply chain process
• Cost reduction and efficiency
• Improvement in logistics and production

Conglomerate Merger

A conglomerate merger combines companies from unrelated business activities, industries, or markets. These mergers typically occur to diversify business operations and revenue streams, which can reduce overall risk.

Diversification through conglomerate mergers was especially popular during the 1950s and 1960s as businesses sought to invest in different industries to buffer against market fluctuations. An example of a conglomerate merger could include a multimedia company merging with a chain of restaurants; these are clearly distinct sectors but can provide financial stability to each other through their different market cycles.

• Diversification of business operations
• Reduction of overall risk
• Stability against market fluctuations

Diversifying Merger

A diversifying merger is similar to a conglomerate merger in that it involves companies from different industries, but here, the industries are complementary rather than completely distinct. The strategy behind this type of merger is to expand the companies' market reach or product offerings by combining forces.

For example, a technology company merging with a software firm that develops applications for its devices can be seen as a diversifying merger. This strategy often targets market expansion and creating a more comprehensive ecosystem of products or services for consumers.

• Combines complementary industries
• Expands market reach or product offerings
• Targets market expansion and ecosystem building