GROUP 6 – TASK 2

What is the difference between a Merger, Acquisition, Joint venture and an Alliance? Explain different
types of mergers & acquisitions. Give two-three examples of each that have happened in the past.

Merger: A merger is a corporate strategy of combining different companies into a single company to enhance
the financial and operational strengths of both organizations. A merger usually involves combining two
companies into a single larger company. The combination of the two companies involves a transfer of
ownership, either through a stock swap or a cash payment between the two companies. In practice, both
companies surrender their stock and issue new stock as a new company.

Acquisition: When one company takes over another and clearly established itself as the new owner, the
purchase is called an acquisition.

Example:

 Cisco set to acquire 2FA provider Duo Security

 Walmart's acquisition of e-commerce major Flipkart

Joint venture: A joint venture is a legal partnership between two (or more) companies where in they both
make a temporary new (third) entity for competitive advantage. Effectively a JV is a completely new
organization but owned by the founding participants.

Example:

 MGM Resorts International and GVC Holdings PLC Announce Joint.

 Waterman Interests, LLC and Brookfield Announce Joint Venture

Strategic Alliance: SA is a kind of partnership between two entities in which they take advantage of each
other’s core strengths like proprietary processes, intellectual capital, research, market penetration,
manufacturing and/or distribution capabilities etc. They share their core strengths with each other. They will
have an open-door relationship with another entity and will mostly retain control.

Example:

 Hyatt and SLH announce strategic alliance

 Star alliance and airline alliance

Types of Mergers and acquisition:

There are five main types of mergers:

1. Conglomerate: This is a merger between two or more companies engaged in unrelated business
activities. The firms may operate in different industries or different geographical regions. A pure
conglomerate involves two firms that have nothing in common. A mixed conglomerate, on the other
hand, takes place between organizations that, while operating in unrelated business activities, are
actually trying to gain product or market extensions through the merger.
Example:
 Walt Disney company and American broadcasting company in 1995.
2. Congeneric: A congeneric merger, also known as Product extension merger, occurs when two or more
companies operate in the same market or sector with overlapping factors, such as technology,
marketing, production processes, research and development (R&D), join to form a new business
entity. When two companies become one under a product extension, they are able to gain access to a
larger group of consumers and, thus, bigger market share.
Example:
 Citigroup’s acquisition of Travelers Insurance. While both were in the financial service
industry, they had different product line.
 Axis bank with Enam Securities in 2012

3. Market Extension: This type of merger occurs between companies that sell the same products but
compete in different markets. Companies that engage in a market extension merger seek to gain
access to a bigger market and, thus, a bigger client base.
Example:
 RBC Centura's acquisition of Eagle Bancshares, Inc.
 Pepco and Exelon
4. Horizontal: A horizontal merger occurs between companies operating in the same industry. The
merger is typically part of consolidation between two or more competitors offering the same products
or services. Such mergers are common in industries with fewer firms, and the goal is to create a larger
business with greater market share and economies of scale since competition among fewer
companies will be higher.
Example:
 The merger of Daimler-Benz and Chrysler in 1998
 Coca-cola and Pepsi merger
5. Vertical: When two companies that produce parts or services for a specific finished product merge, the
union is referred to as a vertical merger. Vertical merger occurs when two companies operating at
different levels within the same industry's supply chain combine their operations. Such mergers are
done to increase synergies achieved through the cost reduction which results from merging with one or
more supply companies.
Example:
 AT&T and Time Warner merger
 Disney-Fox Deal