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    Horizontal Integration

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    ANAND PRAKASH PANDEY
    Horizontal integration is the acquisition of a business operating at the same level of the value chain in the same industry. The document discusses how horizontal integration can create economies of scale and increase market power. It provides examples of horizontal mergers in recent years, such as Marriott's acquisition of Sheraton in the hotel industry. However, horizontal mergers can reduce competition and be scrutinized under antitrust laws if they concentrate too much market share among too few companies.

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    Horizontal Integration

    Uploaded by

    ANAND PRAKASH PANDEY
    49 views7 pages
    Horizontal integration is the acquisition of a business operating at the same level of the value chain in the same industry. The document discusses how horizontal integration can create economies of scale and increase market power. It provides examples of horizontal mergers in recent years, such as Marriott's acquisition of Sheraton in the hotel industry. However, horizontal mergers can reduce competition and be scrutinized under antitrust laws if they concentrate too much market share among too few companies.

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    Horizontal integration is the acquisition of a business operating at the same level of the value chain in the same industry. The document discusses how horizontal integration can create economies of scale and increase market power. It provides examples of horizontal mergers in recent years, such as Marriott's acquisition of Sheraton in the hotel industry. However, horizontal mergers can reduce competition and be scrutinized under antitrust laws if they concentrate too much market share among too few companies.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    49 views7 pages

    Horizontal Integration

    Uploaded by

    ANAND PRAKASH PANDEY
    Horizontal integration is the acquisition of a business operating at the same level of the value chain in the same industry. The document discusses how horizontal integration can create economies of scale and increase market power. It provides examples of horizontal mergers in recent years, such as Marriott's acquisition of Sheraton in the hotel industry. However, horizontal mergers can reduce competition and be scrutinized under antitrust laws if they concentrate too much market share among too few companies.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 7

    CORPORATE FINANCE & ACCOUNTING

    MERGERS & ACQUISITIONS

    Horizontal Integration
    By
    WILL KENTON
    |
    Reviewed by
    JULIUS MANSA
    |
    Updated May 4, 2021

    What is Horizontal Integration


    Horizontal integration is the acquisition of a business operating at the same level of the
    value chain in the same industry. This is in contrast to vertical integration, where firms
    expand into upstream or downstream activities, which are at different stages of production.

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    BREAKING DOWN Horizontal Integration


    Horizontal integration is a competitive strategy that can create economies of scale, increase
    market power over distributors and suppliers, increase product differentiation and help
    businesses expand their market or enter new markets. By merging two businesses, they may
    be able to produce more revenue than they would have been able to do independently.
    However, when horizontal mergers succeed, it is often at the expense of consumers,
    especially if they reduce competition. If horizontal mergers within the same industry
    concentrate market share among a small number of companies, it creates an oligopoly. If
    one company ends up with a dominant market share, it has a monopoly. This is why
    horizontal mergers are heavily scrutinized under antitrust laws.

    Advantages of Horizontal Integration


    Companies engage in horizontal integration to benefit from synergies. There may be
    economies of scale or cost synergies in marketing, research and development (R&D),
    production and distribution. Or there may be economies of scope, which make the
    simultaneous manufacturing of different products more cost-effective than manufacturing
    them on their own. Procter & Gamble’s 2005 acquisition of Gillette is a good example of a
    horizontal merger which realized economies of scope. [1] Because both companies produced
    hundreds of hygiene-related products from razors to toothpaste, the merger reduced the
    marketing and product development costs per product.

    Synergies can also be realized by combining products or markets. Horizontal integration is


    often driven by marketing imperatives. Diversifying product offerings may provide cross-
    selling opportunities and increase each business’ market. A retail business that sells clothes
    may decide to also offer accessories, or might merge with a similar business in another
    country to gain a foothold there and avoid having to build a distribution network from
    scratch.

    Reducing Competition
    The real motive behind a lot of horizontal mergers is that companies want to reduce
    “horizontal” competition in the form of competition from substitutes, competition from
    potential new entrants and the competition from established rivals. These are three of the
    five competitive forces that shape every industry and which are identified in Porter’s Five
    Forces model. The other two forces, the power of suppliers and customers, drive vertical
    integration.

    Disadvantages of Horizontal Integration


    Like any merger, horizontal integration does not always yield the synergies and added value
    that was expected. It can even result in negative synergies which reduce the overall value of
    the business, if the larger firm becomes too unwieldy and inflexible to manage, or if the
    merged firms experience problems caused by vastly different leadership styles and company
    cultures. And if a merger threatens competitors, it could attract the attention of the Federal
    Trade Commission.

    Examples of Horizontal Integration


    Examples of horizontal integration in recent years include Marriott's 2016 acquisition of
    Sheraton (hotels) Anheuser-Busch InBev's 2016 acquisition of SABMiller (brewers),
    AstraZeneca's 2015 acquisition of ZS Pharma (biotech), Volkswagen’s 2012 acquisition of
    Porsche (automobiles), Facebook's 2012 acquisition of Instagram (social media), Disney's
    2006 acquisition of Pixar (entertainment media) and Mittal Steel’s 2006 acquisition of Arcelor
    (steel). [2] [3] [4] [5] [6] [7] [8] 

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    ARTICLE SOURCES

    Related Terms
    Megamerger
    A megamerger is the joining of two large corporations, typically in a transaction worth billions of
    dollars, into one new legal entity.
    more

    What Is a Congeneric Merger


    A congeneric merger is where the acquiring company and the target company do not offer the same
    products but are in a related industry or market.
    more

    Vertical Integration
    Vertical integration is a strategy where a firm acquires business operations within the same
    production vertical, which can be forward or backward in nature.
    more

    Learn How Mergers Happen and Why


    A merger is an agreement that unites two existing companies into one new company. There are
    several types of, and reasons for, mergers.
    more

    Horizontal Acquisition
    A horizontal acquisition is when one company acquires another company in the same industry or
    production stage. more

    The Celler-Kefauver Act Definition


    The Celler-Kefauver Act was a law passed by the U.S. Congress in 1950 to prevent anti-competitive
    mergers and acquisitions (M&A).
    more

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