What is Horizontal Merger?
Horizontal mergers are the form of business combination in which two companies within the same industry or business sector merge into one to form a larger company in the industry, wherein the company being merged is known as the target and the company that it merges into is known as an acquirer.
Explanation of Horizontal Merger Examples
One of the key factors that need to be considered is that the two companies are in the same industry, they can even be competitors. One of the most common reasons for such a merger is to enter in to a new market or geography. Here the foreign player merges with a local player so that it can enter the market and use the established resources of the local player such as the established customer base to its leverage.
Another common reason is uplift the growth of a mature player. Some companies reach their peak growth and become cash cows, such businesses try to merge smaller players in the same industry with newer variants of its own products so as to stay relevant or boost their growth inorganically in the industry and not get phased out.
Another important purpose is to benefit from the economies of scale and the synergies arising out of such mergers. When the companies of the same industry merge into one another, they gain greater bargaining power in the raw material sourcing and also they gain greater pricing power in the consumer market. However, such actions are watched very closely by the anti-trust regulators.
Examples of Horizontal Merger
Following are the examples of horizontal merger:
1. Integration of Facebook, Whatsapp, Instagram & Messenger
This is one of the best examples of horizontal mergers of present times. All of these were independent social media platforms started by different companies and one after another, over the years, these were integrated into one big social media company. The platforms still remain independent in the form that the various websites still exist, but they have come under one company under Facebook Inc. led by Mark Zuckerberg. One of the reasons for merging with Whatsapp is to develop and implement the end to end encryption technology to preserve user privacy. Even though the websites and apps are distinct, the users can interact among them freely by being on one single network. Also, as Facebook reached maturity, integration is a strategy to drive growth.
2. Frito Lay & Uncle Chipps
Till the year 1998, Amrit Agro Ltd., a New Delhi, India based company owned and produced the potato chip brand famous as ‘Uncle Chipps’ and enjoyed as much as 70% market share in India. This was taken over by Frito Lay, another competitor company owned by Pepsi in the year 2000. Frito Lay already owned a potato chip brand called Ruffles Lay’s which had entered the Indian market, however, it merged Uncle Chipps to its portfolio to penetrate further into the Indian Market and also add variety to its potato chip portfolio. The brand Uncle Chipps is still preserved till date because the Indian consumers love the product. It has not been rebranded to some other name so that the market share it enjoys is not lost.
3. Pepsi Co & Rockstar
In March 2020, Pepsi Co. was in news to buy Rockstar for $3.85 billion to progress into the energy drink market. This is aimed at giving the company a higher competitive ground against its competitors such as the Coca Cola. This is more of a combination of horizontal and vertical merger. Rockstar is one of the distributors of Pepsi Co. but the acquisition of the energy drink brand gives Pepsi co a boost with its other energy drink products such as the Mountain Dew. Redbull is the market leader in this category and Pepsi Co aims to penetrate deeper against the same. As this is a very recent development in the beverage industry, the deal is yet to close.
4. T-Mobile & Sprint
The deal closed at $30 billion. This was a merger between two companies in the telecom industry wherein, Sprint would merge into T mobile and give its customer base a boost to reach 100 million. This would make its competition against other players in the market even fierce. Some of the leading competitors are AT&T and Verizon. With this merger, T mobile aims to speed up the development of 5G technology and enhance the customer experience multi folds. It also aims at clubbing the two most important offerings of the industry to its customers, network and value for money by entering into this merger.
5. Disney + & Hotstar
Disney + is Disney’s own online video streaming platform, while Hotstar was India’s streaming platform owned by Star network. Instead of entering into the streaming industry of India directly, Disney has merged with Hotstar, which is now known as Disney+ Hotstar. This merger has seen a little bit of rebranding and Disney has aimed to launch this platform from March end in 2020, for the consumers in India who could access Disney’s shows and films on this merged platform. With this merger, and the launch of its own streaming services, Disney has removed a lot of its content from rival platforms such as Netflix to capture higher market share.
So to sum up, horizontal merger is the merger of the companies producing same or similar products with an aim of becoming a bigger player in the existing market, entering into a newer market or staying in the existing market and achieving higher growth. Although it is a common practice and has existed since a very long time, it is not free from anti-trust actions.
Many of the big mergers have been stalled or halted due to the actions of the competition regulators in the various parts of the world so that monopolies are not created and the consumers don’t lose out due to such monopolies. At times to get approval from the regulators, the merging companies need to disinvest some of their assets so that they get downsized.
This is a guide to Horizontal Merger Examples. Here we also discuss the introduction and examples of horizontal merger which includes, pepsi co & rockstar, t-mobile & sprint, etc. You may also have a look at the following articles to learn more –