Question

Chapter 4 Assignment ASSIGNMENT w We Need to Merge! Step 1: Review the defining characteristics of the three different types of mergers: horizontal, vertical, and conglomerate. Step 2: Examine the list of five possible mergers below. Indicate whether each is horizontal, vertical, or conglomerate. Be prepared to defend your answers. Nike Corporation and Reebok: Procter & Gamble and Kodak: Sealy Mattress Company and Viking Furniture: State Farm and Geico: Dow Chemical and Revlon: Step 3: Develop your own example for each type of merger: Conglomerate Horizontal Vertical Please submit your completed assignment in either Rich Text Format (.rtf) or in Microsoft Word (.doc or .docx) This assignment is worth 20 points

Answer 1

Step 1: A horizontal merger is a merger between companies that sell similar products and are in the same market/industry. The merging companies, in other words, directly compete with each other.

A vertical merger is a merger between companies that are in the same industry but are at different stages of production. The merging companies, in other words, operate along the supply chain.

A conglomerate merger is a merger between companies that are unrelated to each other. The merging companies, in other words, are in different industries.

Step 2:

• Nike and Reebok – This is an example of horizontal merger. This is because both Nike and Reebok sell similar products like sport shoes, athletic wear and sports accessories and both these companies operate in the same industry.
• Procter and Gamble and Kodak – This is an example of conglomerate merger. This is because the businesses of Procter and Gamble and Kodak are completely unrelated and the companies operate in different industries. Procter and Gamble sells consumer goods products like soaps, shampoos etc. while Kodak is in the industry of imaging and filming.
• Sealy Mattress and Viking Furniture - This is an example of vertical merger. Both the companies are in the same industry of furniture, fixtures and accessories and operate along the supply chain. Viking Furniture might also be buying mattress from Sealy Mattress.
• State Farm and Geico - This is an example of horizontal merger. This is because both State Farm and Geico operate in the insurance industry and sell similar types of insurance products.
• Dow Chemical and Revlon - This is an example of vertical merger. This is because Revlon being a manufacturer of cosmetics might be using certain chemicals being made by Dow Chemicals. For instance Dow Chemical manufactures a chemical called ‘parabens’ and this is used by Revlon in some of its products.

Step 3: My own examples of each type of merger (all hypothetical) are:

• Conglomerate – When Phillip Morris buys PepsiCo then it will be an example of conglomerate merger. This is because both companies operate in a different industry.
• Horizontal – When Toyota Motors buys out Nissan then it will be an example of horizontal merger. Both Toyota and Nissan sells cars across the globe.
• Vertical – When Bank of America buys Merrill Lynch then it will be an example of vertical merger. Both the companies are in the same industry and operate along the supply chain at different stages. Bank of America mainly provides consumer banking while Merrill Lynch provides investment banking and advisory, mutual funds etc.