{"id":2973,"date":"2023-02-19T16:11:13","date_gmt":"2023-02-19T16:11:13","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/introduction-to-mergers-and-acquisitions\/"},"modified":"2025-05-22T14:45:06","modified_gmt":"2025-05-22T14:45:06","slug":"introduction-to-mergers-and-acquisitions","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/introduction-to-mergers-and-acquisitions\/","title":{"raw":"Learn It 7.5.1: Mergers and Acquisitions","rendered":"Learn It 7.5.1: Mergers and Acquisitions"},"content":{"raw":"<section class=\"textbox learningGoals\">\r\n<ul>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand what mergers and acquisitions are&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:13185,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand what mergers and acquisitions are<\/span><\/li>\r\n\t<li>Understand why businesses merge and acquire other businesses<\/li>\r\n<\/ul>\r\n<\/section>\r\n<h2>Integration Strategies<\/h2>\r\n<p>When businesses acquire other businesses or operations that were previously competitors, suppliers, buyers, or sellers, they are engaging in a strategy known as <strong>integration<\/strong>. This strategy is based on the possibility\u00a0of <strong>synergy<\/strong>, the idea that the sum of two entities will be greater than their individual parts. Integration can be accomplished in two primary ways: through mergers or acquisitions.<\/p>\r\n<h2>Mergers<\/h2>\r\n<p>A <strong>merger<\/strong> is the consolidation of two companies that, prior to the merger, were operating as independent entities. A merger usually creates one larger company, and one of the original\u00a0companies ceases to exist. Mergers can be either horizontal or vertical.<\/p>\r\n<h3>Horizontal Merger<\/h3>\r\n<p>A <strong>horizontal\u00a0merger<\/strong> occurs between companies in the same industry. This type of merger is essentially a consolidation of two or more\u00a0businesses that\u00a0operate in the same market space, often as competitors offering the same good or service. Horizontal mergers are common in industries with fewer firms, since competition tends to be higher, and the synergies and potential market-share gains are much greater in those industries.<\/p>\r\n<section class=\"textbox seeExample\">\r\n<h4><strong>Facebook + Instagram = Horizontal Merger<\/strong><\/h4>\r\n<p>When\u00a0Facebook acquired Instagram in 2012 for a reported $1 billion, Facebook was looking to strengthen its position in the social media and social-sharing space. Both Facebook and Instagram operated in the same industry and were in similar\u00a0positions with regard to\u00a0their photo-sharing services. Facebook clearly saw Instagram as an opportunity to grow its market share, increase its product line, reduce competition, and access new markets.<\/p>\r\n<\/section>\r\n<h3>Vertical Merger<\/h3>\r\n<p>A <strong>vertical merger<\/strong>\u00a0is characterized by the merger of two organizations that have a buyer-seller relationship, or, more generally, two or more firms that are operating at different levels within an industry's supply chain. Most often, the logic behind the merger is to increase synergies by merging firms that would be more efficient operating as one.<\/p>\r\n<section class=\"textbox seeExample\">\r\n<h5>Apple: The King of Vertical Integration<\/h5>\r\n<p>Apple Inc. is famous\u00a0for perfecting the art of vertical integration. The company manufactures its custom A-series chips for its iPhones and iPads. It also manufactures its custom touch ID fingerprint sensor. Apple opened up a laboratory in Taiwan for the development of LCD and OLED screen technologies in 2015. It also paid $18.2 million for a 70,000-square-foot manufacturing facility in North San Jose in 2015. These investments (i.e., mergers) enable\u00a0Apple to move along the supply chain in a backward integration, giving it flexibility and freedom in its manufacturing capabilities.[footnote]Kenton, Will. \"Vertical Integration.\" Investopedia. August 21, 2019. <a href=\"http:\/\/www.investopedia.com\/terms\/v\/verticalintegration.asp#ixzz4PRMbV5zm\" target=\"_blank\" rel=\"noopener\">http:\/\/www.investopedia.com\/terms\/v\/verticalintegration.asp#ixzz4PRMbV5zm<\/a>[\/footnote]<\/p>\r\n<\/section>\r\n<h2>Acquisitions<\/h2>\r\n<p>An <strong>acquisition<\/strong>, on the other hand, occurs when\u00a0a company purchases the assets of another\u00a0business (such as stock, property, plants, equipment) and usually permits\u00a0the acquired company to continue operating as it did prior to the acquisition. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and\/or longer-established company and retain the name of the latter for the post-acquisition combined entity.<\/p>\r\n<section class=\"textbox seeExample\">\r\n<h5>Microsoft + Activision Blizzard?<\/h5>\r\n\r\n[caption id=\"attachment_7875\" align=\"alignright\" width=\"300\"]<img class=\"wp-image-7875 size-medium\" src=\"https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911-300x200.jpg\" alt=\"a person's hand typing on a backlit keyboard in a dark room\" width=\"300\" height=\"200\" \/> Figure 1. Microsoft finalized the acquisition of Activision in 2023.[\/caption]\r\n\r\n<p>In January 2022, Microsoft announced its intent to acquire the world's largest video game maker, Activision Blizzard, for $69 billion. Activision's games include Warcraft, Diablo, Call of Duty, Overwatch, and Candy Crush. This move would add more users and revenue to Microsoft's subscription and cloud gaming offerings.[footnote]Patel, Kison. \u201c11 Biggest Mergers &amp; Acquisitions Deals of 2022 (so Far).\u201d 11 Biggest Mergers &amp; Acquisitions Deals of 2022 (so far), January 10, 2001. https:\/\/dealroom.net\/blog\/biggest-m-a-deals-2022[\/footnote] However, the Federal Trade Commission, the regulatory agency that serves as a watchdog for anticompetitive behavior, tried to block the acquisition. The FTC's reasoning was that Microsoft would have so much market power that competitors who manufacture gaming consoles and offer competing subscription services would be harmed.[footnote]Federal Trade Commission. \u201cFTC Seeks to Block Microsoft Corp.\u2019s Acquisition of Activision Blizzard, Inc.,\u201d December 8, 2022. https:\/\/www.ftc.gov\/news-events\/news\/press-releases\/2022\/12\/ftc-seeks-block-microsoft-corps-acquisition-activision-blizzard-inc[\/footnote]<\/p>\r\n<p>Microsoft finalized the deal in 2023. Despite efforts by the FTC, ultimately a federal appeals court decided the FTC was unlikely to be able to show that the acquisition would restrict competition.[footnote]Scarcella, Mike. 2025. \u201cMicrosoft Wins Appeal in FTC Challenge to $69 Bln Activision Blizzard Deal.\u201d Reuters, May 7, 2025. https:\/\/www.reuters.com\/legal\/microsoft-wins-ftc-appeal-challenging-69-bln-activision-blizzard-deal-2025-05-07\/[\/footnote]<\/p>\r\n<\/section>\r\n<section class=\"textbox tryIt\">[ohm2_question height=\"300\"]3916[\/ohm2_question]<\/section>\r\n<p>&nbsp;<\/p>","rendered":"<section class=\"textbox learningGoals\">\n<ul>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand what mergers and acquisitions are&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:13185,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand what mergers and acquisitions are<\/span><\/li>\n<li>Understand why businesses merge and acquire other businesses<\/li>\n<\/ul>\n<\/section>\n<h2>Integration Strategies<\/h2>\n<p>When businesses acquire other businesses or operations that were previously competitors, suppliers, buyers, or sellers, they are engaging in a strategy known as <strong>integration<\/strong>. This strategy is based on the possibility\u00a0of <strong>synergy<\/strong>, the idea that the sum of two entities will be greater than their individual parts. Integration can be accomplished in two primary ways: through mergers or acquisitions.<\/p>\n<h2>Mergers<\/h2>\n<p>A <strong>merger<\/strong> is the consolidation of two companies that, prior to the merger, were operating as independent entities. A merger usually creates one larger company, and one of the original\u00a0companies ceases to exist. Mergers can be either horizontal or vertical.<\/p>\n<h3>Horizontal Merger<\/h3>\n<p>A <strong>horizontal\u00a0merger<\/strong> occurs between companies in the same industry. This type of merger is essentially a consolidation of two or more\u00a0businesses that\u00a0operate in the same market space, often as competitors offering the same good or service. Horizontal mergers are common in industries with fewer firms, since competition tends to be higher, and the synergies and potential market-share gains are much greater in those industries.<\/p>\n<section class=\"textbox seeExample\">\n<h4><strong>Facebook + Instagram = Horizontal Merger<\/strong><\/h4>\n<p>When\u00a0Facebook acquired Instagram in 2012 for a reported $1 billion, Facebook was looking to strengthen its position in the social media and social-sharing space. Both Facebook and Instagram operated in the same industry and were in similar\u00a0positions with regard to\u00a0their photo-sharing services. Facebook clearly saw Instagram as an opportunity to grow its market share, increase its product line, reduce competition, and access new markets.<\/p>\n<\/section>\n<h3>Vertical Merger<\/h3>\n<p>A <strong>vertical merger<\/strong>\u00a0is characterized by the merger of two organizations that have a buyer-seller relationship, or, more generally, two or more firms that are operating at different levels within an industry&#8217;s supply chain. Most often, the logic behind the merger is to increase synergies by merging firms that would be more efficient operating as one.<\/p>\n<section class=\"textbox seeExample\">\n<h5>Apple: The King of Vertical Integration<\/h5>\n<p>Apple Inc. is famous\u00a0for perfecting the art of vertical integration. The company manufactures its custom A-series chips for its iPhones and iPads. It also manufactures its custom touch ID fingerprint sensor. Apple opened up a laboratory in Taiwan for the development of LCD and OLED screen technologies in 2015. It also paid $18.2 million for a 70,000-square-foot manufacturing facility in North San Jose in 2015. These investments (i.e., mergers) enable\u00a0Apple to move along the supply chain in a backward integration, giving it flexibility and freedom in its manufacturing capabilities.<a class=\"footnote\" title=\"Kenton, Will. &quot;Vertical Integration.&quot; Investopedia. August 21, 2019. http:\/\/www.investopedia.com\/terms\/v\/verticalintegration.asp#ixzz4PRMbV5zm\" id=\"return-footnote-2973-1\" href=\"#footnote-2973-1\" aria-label=\"Footnote 1\"><sup class=\"footnote\">[1]<\/sup><\/a><\/p>\n<\/section>\n<h2>Acquisitions<\/h2>\n<p>An <strong>acquisition<\/strong>, on the other hand, occurs when\u00a0a company purchases the assets of another\u00a0business (such as stock, property, plants, equipment) and usually permits\u00a0the acquired company to continue operating as it did prior to the acquisition. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and\/or longer-established company and retain the name of the latter for the post-acquisition combined entity.<\/p>\n<section class=\"textbox seeExample\">\n<h5>Microsoft + Activision Blizzard?<\/h5>\n<figure id=\"attachment_7875\" aria-describedby=\"caption-attachment-7875\" style=\"width: 300px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-7875 size-medium\" src=\"https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911-300x200.jpg\" alt=\"a person's hand typing on a backlit keyboard in a dark room\" width=\"300\" height=\"200\" srcset=\"https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911-300x200.jpg 300w, https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911-1024x684.jpg 1024w, https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911-768x513.jpg 768w, https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911-1200x801.jpg 1200w, https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911-65x43.jpg 65w, https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911-225x150.jpg 225w, https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911-350x234.jpg 350w, https:\/\/content-cdn.one.lumenlearning.com\/wp-content\/uploads\/sites\/15\/2023\/02\/21162553\/pexels-soumil-kumar-735911.jpg 1279w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-7875\" class=\"wp-caption-text\">Figure 1. Microsoft finalized the acquisition of Activision in 2023.<\/figcaption><\/figure>\n<p>In January 2022, Microsoft announced its intent to acquire the world&#8217;s largest video game maker, Activision Blizzard, for $69 billion. Activision&#8217;s games include Warcraft, Diablo, Call of Duty, Overwatch, and Candy Crush. This move would add more users and revenue to Microsoft&#8217;s subscription and cloud gaming offerings.<a class=\"footnote\" title=\"Patel, Kison. \u201c11 Biggest Mergers &amp; Acquisitions Deals of 2022 (so Far).\u201d 11 Biggest Mergers &amp; Acquisitions Deals of 2022 (so far), January 10, 2001. https:\/\/dealroom.net\/blog\/biggest-m-a-deals-2022\" id=\"return-footnote-2973-2\" href=\"#footnote-2973-2\" aria-label=\"Footnote 2\"><sup class=\"footnote\">[2]<\/sup><\/a> However, the Federal Trade Commission, the regulatory agency that serves as a watchdog for anticompetitive behavior, tried to block the acquisition. The FTC&#8217;s reasoning was that Microsoft would have so much market power that competitors who manufacture gaming consoles and offer competing subscription services would be harmed.<a class=\"footnote\" title=\"Federal Trade Commission. \u201cFTC Seeks to Block Microsoft Corp.\u2019s Acquisition of Activision Blizzard, Inc.,\u201d December 8, 2022. https:\/\/www.ftc.gov\/news-events\/news\/press-releases\/2022\/12\/ftc-seeks-block-microsoft-corps-acquisition-activision-blizzard-inc\" id=\"return-footnote-2973-3\" href=\"#footnote-2973-3\" aria-label=\"Footnote 3\"><sup class=\"footnote\">[3]<\/sup><\/a><\/p>\n<p>Microsoft finalized the deal in 2023. Despite efforts by the FTC, ultimately a federal appeals court decided the FTC was unlikely to be able to show that the acquisition would restrict competition.<a class=\"footnote\" title=\"Scarcella, Mike. 2025. \u201cMicrosoft Wins Appeal in FTC Challenge to $69 Bln Activision Blizzard Deal.\u201d Reuters, May 7, 2025. https:\/\/www.reuters.com\/legal\/microsoft-wins-ftc-appeal-challenging-69-bln-activision-blizzard-deal-2025-05-07\/\" id=\"return-footnote-2973-4\" href=\"#footnote-2973-4\" aria-label=\"Footnote 4\"><sup class=\"footnote\">[4]<\/sup><\/a><\/p>\n<\/section>\n<section class=\"textbox tryIt\"><iframe loading=\"lazy\" id=\"ohm3916\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=3916&theme=lumen&iframe_resize_id=ohm3916&source=tnh&show_question_numbers\" width=\"100%\" height=\"300\"><\/iframe><\/section>\n<p>&nbsp;<\/p>\n<hr class=\"before-footnotes clear\" \/><div class=\"footnotes\"><ol><li id=\"footnote-2973-1\">Kenton, Will. \"Vertical Integration.\" Investopedia. August 21, 2019. <a href=\"http:\/\/www.investopedia.com\/terms\/v\/verticalintegration.asp#ixzz4PRMbV5zm\" target=\"_blank\" rel=\"noopener\">http:\/\/www.investopedia.com\/terms\/v\/verticalintegration.asp#ixzz4PRMbV5zm<\/a> <a href=\"#return-footnote-2973-1\" class=\"return-footnote\" aria-label=\"Return to footnote 1\">&crarr;<\/a><\/li><li id=\"footnote-2973-2\">Patel, Kison. \u201c11 Biggest Mergers &amp; Acquisitions Deals of 2022 (so Far).\u201d 11 Biggest Mergers &amp; Acquisitions Deals of 2022 (so far), January 10, 2001. https:\/\/dealroom.net\/blog\/biggest-m-a-deals-2022 <a href=\"#return-footnote-2973-2\" class=\"return-footnote\" aria-label=\"Return to footnote 2\">&crarr;<\/a><\/li><li id=\"footnote-2973-3\">Federal Trade Commission. \u201cFTC Seeks to Block Microsoft Corp.\u2019s Acquisition of Activision Blizzard, Inc.,\u201d December 8, 2022. https:\/\/www.ftc.gov\/news-events\/news\/press-releases\/2022\/12\/ftc-seeks-block-microsoft-corps-acquisition-activision-blizzard-inc <a href=\"#return-footnote-2973-3\" class=\"return-footnote\" aria-label=\"Return to footnote 3\">&crarr;<\/a><\/li><li id=\"footnote-2973-4\">Scarcella, Mike. 2025. \u201cMicrosoft Wins Appeal in FTC Challenge to $69 Bln Activision Blizzard Deal.\u201d Reuters, May 7, 2025. https:\/\/www.reuters.com\/legal\/microsoft-wins-ftc-appeal-challenging-69-bln-activision-blizzard-deal-2025-05-07\/ <a href=\"#return-footnote-2973-4\" class=\"return-footnote\" aria-label=\"Return to footnote 4\">&crarr;<\/a><\/li><\/ol><\/div>","protected":false},"author":21,"menu_order":26,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Outcome: Mergers and Acquisitions\",\"author\":\"Linda Williams and Lumen Learning\",\"organization\":\"\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"keyboard\",\"author\":\"Soumil Kumar\",\"organization\":\"Pexels\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":2947,"module-header":"learn_it","content_attributions":[{"type":"original","description":"Outcome: Mergers and Acquisitions","author":"Linda Williams and Lumen Learning","organization":"","url":"","project":"","license":"cc-by","license_terms":""},{"type":"cc","description":"keyboard","author":"Soumil Kumar","organization":"Pexels","url":"","project":"","license":"cc-by","license_terms":""}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2973"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/users\/21"}],"version-history":[{"count":15,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2973\/revisions"}],"predecessor-version":[{"id":9485,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2973\/revisions\/9485"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/parts\/2947"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2973\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/media?parent=2973"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=2973"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/contributor?post=2973"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/license?post=2973"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}