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Horizontal MergersHorizontal mergers take place when two companies in the same industry merge. Typically, industry competitors seek such mergers for a variety of reasons, including increasing market share, achieving economies of scale, lowering competition, and so on. The merged entity could service a larger customer base with relatively lower assets and combined resources. In addition, the cost savings from equipment, employees, operations, and other heads led to an estimated annual synergy of $2 billion for the merged entity. The merger of two companies at similar levels in the production supply chain is known as horizontal integration.

But after the entrance of Jio, in the Indian Telecommunication sector, things changed. It is very essential for a company that wants to acquire different markets. Larger companies are harder to handle and they are less adaptable in bringing developments with the business. M&A fall flat and demolish the worth of the companies included in it because of the fact that normal cooperative energies never appear.

Facebook was able to focus development on improving both Facebook and Instagram instead of on competition with this acquisition. The world’s largest digital social media corporate Facebook Inc acquired Instagram for approximately US$1 billion in cash and stock on 9th April 2012. Instagram was a very popular social media platform mainly with Generation Z. For instance, an Agro business that sells Agro equipment and farm machinery may decide to also offer bio-fertilizers or micronutrients. Or a travel firm might merge with a similar business in another country to gain a foothold and achieve their goals more quickly and easily than with a solo expansion. The larger company has more power over its suppliers and distributors/customers.

Types of Horizontal Integration

Firms are also able to improve service and increase their capabilities, since the companies that they acquire often have different capabilities. They are able to better serve their customers as well as expand their knowledge of customer demands and the industry. AT&T is a telecommunications company that Strategic business course of management in 6 steps has acquired other firms in that industry, such as T-Mobile and BellSouth. While the firms operate in some of the same areas, there are areas that AT&T did not operate in until acquiring those companies. AT&T was able to increase its market share by acquiring the customers of T-Mobile and BellSouth.

• Mergers based on horizontal integration are subject to heavy scrutinization because they can often result in a monopoly where one company dominates the market.
• This enables them to increase the production of similar products on a larger scale whilst bringing down the cost factor.
• The horizontal integration leads to a monopoly and thereby stability of the market under control of government.
• Also, through the merger, both companies were able to focus on new areas of sports.

It also enables economies of scale as a result of the reduction in per unit cost of production and there can be an increase in bargaining power as well as far as suppliers are concerned. This is made possible https://1investing.in/ because of the resultant huge size and impact of the company resulting from the merger. Horizontal Integration involves the amalgamation of companies on the same level of the supply chain in an industry.

Vertical and Horizontal Integration in Strategic Management

The overall gain from a horizontal integration is an increase in the market power and minimal loss for being non-integrated. Horizontal acquisition is one type of horizontal integration strategy. This brings the other company into the one that is acquiring it, rather than the companies operating jointly but together.

• Horizontal integration can be an effective strategy to increase profits for a business.
• The company can proceed with Horizontal Integration in a form of mergers and acquisitions.
• However it cost less to purchase an existing product than to start another one from score.
• Managing the target company becomes convenient for the top management because of it being in the same business rather than being a new business category altogether.
• Also, the new entity could enhance its production capacity and ensure that the synergies between the products could be shared.
• Once a new firm is acquired, managers must work to assimilate the new company into its organization, eliminate waste, combine and restructure resources in a way that increases it capabilities.

The final stage of the takeover includes filing an acquisition notice of 30 days with the SEC (Security & Exchange Commission) and the board of directors of the target firm. The renowned company IBM acquired Red Hat in July 2019 which is an American multinational open-source software company. This $34 billion deal is considered as IBM’s largest deal so far and also, one of the biggest technology acquisitions in history. Under this deal, the Red Hat is to function as a unit inside the Cloud and cognitive software segment of IBM. In 2019, Bank of Baroda has acquired 3rd position in India’s largest bank after its merger with Dena Bank and Vijaya Bank.

Types Of Horizontal Integration

The strategy helped Carnegie produce cheaper steel, and empowered it in the marketplace. Compaq was an American information technology company founded in 1982 that developed, sold, and supported computers and related products and services. Hewlett-Packard founded in the United States, provided a wide variety of hardware components, as well as software and related services to consumers and businesses.

• PESTEL or PESTLE analysis, also known as PEST analysis, is a tool for business analysis of political, economic, social, and technological factors.
• This acquisition combines Pixar’s creative and technological resources with Disney’s unparalleled portfolio of world-class family entertainment, characters, theme parks, and other franchises.
• This strategy facilitates the firm in reducing industry competition by diminishing extra capacity in the industry.
• The integration brought 30 hotel brands under the Marriott umbrella.
• For the combined entities the road typically leads to a market monopoly if they manage to fend off competition.

As companies in the same work space try to fight off competition from significantly well-performing rivals, horizontal integration is the standard way to stay in business and sustain growth. Horizontal integration is a strategy where a company acquires, mergers or takes over another company in the same industry value chain. Hewlett-Packard provided a wide variety of hardware components, as well as software and related services to consumers and businesses. Tata Steel was established in 1907 which was the largest steel producer. Corus was formed through the merger of British Steel and Koninklijke Hoogovens, which was an international steel and metals manufacturer. One of the world’s largest steel producers Mittal Steel Company had merged with Arcelor.

Business Scalability: Essential For Every Organization

A firm is said to possess ownership of the target firm once it purchases either all or most of the shares of that target firm. In this process, a higher price than the stock’s market value is offered by the acquiring firm to shareholders of the target firm to buy its shares. In proxy fight takeover, the acquiring firm seeks the voting rights of shareholders of the target firm to have control over its board of directors.

The horizontal integration leads to a monopoly and thereby stability of the market under control of government. A horizontal integration can generally be described as involving less control . Horizontal integration increases dependency of both partners on each other. Moreover, trust is an important factor in Horizontal integration as lack of trust can cause the integration to break. Thus, you will generally see horizontal integration taking its own sweet time to fall through. Horizontal integration happens when two or more companies producing the same or similar goods or providing the same/similar services merge together to produce a horizontally integrated firm.

Just as the name applies, a hostile takeover is for the lack of a better word, hostile. It is when a company has been acquired that did not want to be acquired. In this situation, Instagram was a large competitor for Facebook, as both programs had many users and were quite popular. In order to remove the competition, Facebook bought out Instagram in 2012, though they are still operating under their own name.

Charles is a nationally recognized capital markets specialist and educator with over 30 years of experience developing in-depth training programs for burgeoning financial professionals. Charles has taught at a number of institutions including Goldman Sachs, Morgan Stanley, Societe Generale, and many more. In 2005, Disney’s new president Robert Iger proposed the acquisition of Pixar to Disney’s board members and shareholders. The proposal was made by Robert Iger after analyzing the market properly.

This typically entails companies offering similar products and services. The year 1998 witnessed the merger of two oil behemoths Exxon and Mobil. The deal value was $81 billion and the merged company was called Exxon Mobil Corp. The combined revenues were in the excess of $200 billion and worldwide production of 2.5 million barrels of oil a day.

The Walt Disney Company completed its acquisition of 21st Century Fox in March 2019. The goal is to achieve economies of scale while also cross-selling to each other’s clients. Many organizations across the world indulge in horizontal integration, which makes it easy for them to reduce competition. While it seems an easy way, each merger and acquisition gets cleared by a regulator that checks if there’s no violation of antitrust laws. The JP Morgan and Chase bank resulted from a merger between Chase Manhattan Bank and JP Morgan Company for an all-stock transaction of approximately $31 billion. Chase Manhattan was the third biggest banking company in the U.S., controlling an asset worth roughly $396 billion compared to the $266 billion JP Morgan company.