About Business Corporate Mergers
Business corporate mergers occur when one corporation takes over another. One corporation then ceases to exist and becomes a part of the other, possibly as a subsidiary or division.
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Types
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There are three types of mergers, according to the Free Dictionary. A horizontal merger is where one company takes over another in the same business in the same geographical area. A corporation either acquires a customer or supplier in a vertical merger. The final type, conglomerate mergers, includes all other types of mergers.
Advantages
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The advantages of mergers are that they may increase efficiency, which can lead to lower prices and higher quality. The threat of a merger gives managers an incentive to maximize profits and shareholder value. Many entrepreneurs form companies with the expectation that they can sell them to another for a lot of money after they become successful.
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Problems
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Mergers inevitably reduce the amount of competition. This is especially true where the two companies that are merging are in the same business. The concern is that less competition will mean higher prices and inferior service to consumers. These types of mergers are subject to anti-trust law and carefully scrutinized by the federal government, though it has become less aggressive in blocking mergers since the 1980s.
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