1.1 Meaning and definition of Business Combination

May arise when one entity acquires control over to combines

with another business by acquiring the share capital of another

or the tow entities exchange their issued share capitals.

Generally, business combinations refer to transactions in which

one company gains control, or at least controlling interest, in

another company. A business combination can be aptly defined

as amalgamation of the assets of two or more business entities

for their consolidation as a single entity under single ownership.

A business combination can be managed easily through the way

of a voluntary acquisition, a merger, or a hostile takeover. In

many cases, a preferred means of managing a business

combination might be acquiring a controlling amount of stock.

1.2 Different types of Business Combinations

Business combinations can be categorized into the following

four types:

Vertical combination

This is a business combination wherein various departments of

large industrial units come together under single management.

Under this business combination all the stages, from purchase to

selling of product, are linked by units. The key objectives of a

vertical combination include:

i. minimizing the per unit cost

ii. elimination competition1

iii. hiring the experts’ services

iv. supplying goods at lowest prices

v. avoiding over production

vi. improving production methods

vii. achieving large scale benefits

viii. finding proper market for their product

ix. supervising the management

x. reducing the middleman commission

xi. earning maximum profit

Horizontal combination

Also referred as voluntary combination, it is an association of

two or more business units of same nature under a single

management. Both the business units involved in combination

are engaged in same activity and their combination is, therefore,

referred as horizontal combination. The key objectives of this

business combination are the same as those of a vertical

combination. Some examples of horizontal combination include:

The Standard Oil Company's acquisition of 40 refineries.

An automobile manufacturer's acquisition of a sport utility

vehicle manufacturer.

A media company's ownership of radio, television, newspapers,

books, and magazines.

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Advantages of Horizontal combination:

The following are some benefits sought by firms that

horizontally integrate:

Economies of scale - acheived by selling more of the same

product, for example, by geographic expansion.

Economies of scope - achieved by sharing resources common to

different products. Commonly referred to as "synergies."

Increased market power (over suppliers and downstream

channel members)

Reduction in the cost of international trade by operating

factories in foreign markets.

Sometimes benefits can be gained through customer perceptions

of linkages between products. For example, in some cases

synergy can be achieved by using the same brand name to

promote multiple products. However, such extensions can have

drawbacks, as pointed out by Al Ries and Jack Trout in their

marketing classic,

Circular combination

This business combination type involves different business units

coalesce themselves under a single management. For instance, a

shoes industry combining with cloth and sugar industry

exemplifies mixed combination. The key objective of this

benefit is securing the benefits of administrative ability by the

way of common management.3

Diagonal combination

A diagonal business combination involves two or more business

entities performing subsidiary services combining themselves

under a single management. The key objective of this

amalgamation is making the business unit large and self

sufficient.

1.3 Merger

Merger simply means a combination of two or more to form a

single new identity.

In corporate world, Merger defined as a combo of two or more

than two companies into a single company rather than remain

separately owned and operated. Both companies' stocks are

surrendered and new company stock is issued in its place.

1.4 Amalgamation

In general, amalgamation is the process of combining or

uniting multiple entities into one form.

Amalgamate and its derivatives may refer to:

Metals and science

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In mining, amalgamation was historically used in the patio

process and pan amalgamation to recover precious metals

from ore by combining them with mercury.

1.5 Difference between merger and amalgamation

"Very often, the two expressions "merger" and "amalgamation"

are taken as synonymous. But there is, in fact, a difference.

Merger is restricted to a case where the assets and liabilities of

the companies get vested in another company, the company

which is merged losing its identity and its shareholders

becoming shareholders of the other company.

On the other hand, amalgamation is an arrangement, whereby

the assets and liabilities of two or more companies become

vested in another company (which may or may not be one of the

original companies) and which would have as its shareholders

substantially, all the shareholders of the amalgamating

companies."

1.6 Difference between horizontal combination and vertical

combination

Horizontal integration is the process of merging similar

industries, industries that produce similar products. Horizontal

integration would include tactics like buying competing

companies that produce the same goods as you do. Vertical

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integration is the process of buying out suppliers of that

particular industry. For example, a steel company would have an

advantage over competitors by vertical integration if that

company bought out places like coal fields or iron mines, places

that competing steel companies rely on to make their steel. This

would let you control the raw materials and transportation

systems.

The main difference is that horizontal integration buys the

competing companies while vertical integration aims at the raw

material sources necessary to produce that product

1. Nature: Under horizontal combination, units carrying on

the same trade or activity join together. They operate at the

same stage in the industry but in case of vertical

combination, units operate at different stages of

manufacture of a product.

2. Elimination of Competition: The horizontal combination

eliminates competition among the units so combined. But

it is not so in vertical integration as the combined units

were not competing with each other.

3. Control over Market: Horizontal combination may lead

to full control of a monopoly. But it is not so in case of

vertical combination.

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4. Sell-sufficiency: Horizontal combination does not lead to

self-sufficiency of materials. But in vertical integration,

the manufacturer of a product may integrate with the

supplier of raw material. This will lead to self-sufficiency.

5. Inter-dependency: The combined units under horizontal

combination are not interdependent as far as raw materials

are concerned. All units operate as semi-autonomous units.

The stoppage of work in one unit doesn't affect the

working of others. But in case of vertical integration, there

is a combination of successive stages of production.

Stoppage of work at one stage will affect the functioning

at all subsequent stages. For instance, bread can't be

prepared if flour is not available. Flour can't be made

available if.

1.7 Types of combination briefly

INTERNAL LABOR T: Competing Interpretations

1) Labor economists emphasize technical determinants:

technological progress increases workers' skill monopoly in the

firm and that internal advancement opportunities are required so

that senior workers will train junior personnel

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2) Williamson emphasizes informational constraints that favor

internal labor promotion hierarchies over perfectly competitive

labor market.

3) Neo-Marxists regarded internal labor markets as an effort by

capitalists to control a volatile work force.

Researchers have documented the impact of internal labor

markets in two ways:

1) Attempts to infer how internal labor markets operate from

data on individual career paths. E.g. attainment researchers have

attributed racial and sexual differences in the effects that

schooling and first job have on career outcomes to the exclusion

of women and minorities from internal labor markets. This

research does not illuminate how or why this occurs.

2) Other investigators have analyzed career processes in their

organizational setting directly, detailing the criteria that

employers use in structuring rewards and opportunities.

Unfortunately, this research has often been limited to specific

work contexts.

THE IMPACT OF SIZE:

-Wages are higher both in industries made up of large

companies and in the larger companies within any given

industry.8

-Granovetter argues that these relationships only characterize

manufacturing industries.

-Effects of schooling on income and status increase

monotonically with the size of employee's work location (for

white, male, nonagricultural workers) (Stolzenberg 1978).

Possible explanations:

- Large bureaucracies may pay and promote more because scale

economies increase worker productivity, structure of demand

allows higher wages to be absorbed in product pricing.

-Urban locations, where higher wages are necessary to offset

competitors' offers. -Large organization are more vulnerable to

worker unrest and rewards are higher to reduce the chances of

labor-management conflict.

IMPACT OF GROWTH:

-Corporate growth increases promotion rates. (Even among

those less likely to be promoted e.g. women).

-Economic contraction disproportionately harms those the

growth helps.

IMPACT OF DEMOGRAPHY:

-Individuals' careers are not independent (attainment research

assumes they are).-Size of one's organizational cohort and its 9

relation to other cohorts significantly affects career outcomes.

E.g. members of small cohorts experience enhances mobility

prospects.

IMPACT OF TECHNOLOGY:

-Automation raises the average level of worker skill and

increases the variance within firms, giving rise to skill-based

career lines that reflect job idiosyncrasies.-Long-linked

technologies (e.g. assembly lines) generate more lateral mobility

because workers are interchangeable.

-Mediating and Intensive technologies (e.g. client-oriented

banks and research labs, respectively) foster more upward

mobility. (In specialized professions knowledge is crucial).

IMPACT OF UNIONIZATION:

- ''Monopoly power'' perspective: unions push wages higher than

productivity warrants, at the same time widening disparities

between advantaged and disadvantaged groups. ''Collective

violence'' perspective: regards union wage premiums as

reasonable social reimbursements for the savings that unions

generate in terms of proved governance and social control. Also

viewed as equalizing agents.

-Unions emphasize seniority-based rewards, and collective

bargaining often arises in work settings where it is difficult to10

discern the relationships between worker characteristics and

rewards.

IMPACT OF ORGANIZATIONAL ENVIRONMENTS:

-Good jobs are concentrated in ''core'' or monopolistic firms and

industries. Explained by: technical mix; level of union and

management interests in employment stability; ability to absorb

higher labor costs due to market structure and demand

schedules; growth, concentration, and change in organization

forms; differences in the quantity and quality of managerial

activity; and economic and political relationships with the state

and foreign markets.

ORGANIZATIONAL DIFFERENCES IN MATCHING

WORKERS TO JOBS - HOW CAREER DYNAMICS

DEPEND ON THE ORGANIZATIONAL SETTING

Models of Employer Decision-Making

-Human Capital: workers possess vocational aspirations, which

are treated as exogenous, and invest in human capital so as to

maximize their utility and earnings, subject to various

constraints (e.g. innate ability). Firm's labor needs are

determined by its technology (capital-labor ratio) and product

demand.

11

-marxian idea that ''control imperative'' shapes employment

relations

-Contemporary models reject the underlying assumptions that

both the worker and the firm have perfect information and

pursue a maximizing strategy in Competing Interpretations

1) Labor economists emphasize technical determinants:

technological progress increases workers' skill monopoly in the

firm and that internal advancement opportunities are required so

that senior workers will train junior personnel

2) Williamson emphasizes informational constraints that favor

internal labor promotion hierarchies over perfectly competitive

labor market

3) Neo-Marxists regarded internal labor markets as an effort by

capitalists to control a volatile work force.

Researchers have documented the impact of internal labor

markets in two ways:

1) Attempts to infer how internal labor markets operate from

data on individual career paths. E.g. attainment researchers have

attributed racial and sexual differences in the effects that

schooling and first job have on career outcomes to the exclusion 12

of women and minorities from internal labor markets. This

research does not illuminate how or why this occurs.

2) Other investigators have analyzed career processes in their

organizational setting directly, detailing the criteria that

employers use in structuring rewards and opportunities.

Unfortunately, this research has often been limited to specific

work contexts.

-Wages are higher both in industries made up of large

companies and in the larger companies within any given

industry.

-Granovetter argues that these relationships only characterize

manufacturing industries.

-Effects of schooling on income and status increase

monotonically with the size of employee's work location (for

white, male, nonagricultural workers) (Stolzenberg 1978).

Possible explanations:

- Large bureaucracies may pay and promote more because scale

economies increase worker productivity, structure of demand

allows higher wages to be absorbed in product pricing.

-Urban locations, where higher wages are necessary to offset

competitors' offers13

. -Large organization are more vulnerable to worker unrest and

rewards are higher to reduce the chances of labor-management

conflict.

-Corporate growth increases promotion rates. (Even among

those less likely to be promoted e.g. women).

-Economic contraction disproportionately harms those the

growth helps

-Individuals' careers are not independent (attainment research

assumes they are).-Size of one's organizational cohort and its

relation to other cohorts significantly affects career outcomes.

E.g. members of small cohorts experience enhances mobility

prospects.

-Automation raises the average level of worker skill and

increases the variance within firms, giving rise to skill-based

career lines that reflect job idiosyncrasies.-Long-linked

technologies (e.g. assembly lines) generate more lateral mobility

because workers are interchangeable.

-Mediating and Intensive technologies (e.g. client-oriented

banks and research labs, respectively) foster more upward

mobility. (In specialized professions knowledge is crucial).

14

''Monopoly power'' perspective: unions push wages higher than

productivity warrants, at the same time widening disparities

between advantaged and disadvantaged groups.

''Collective violence'' perspective: regards union wage premiums

as reasonable social reimbursements for the savings that unions

generate in terms of proved governance and social control. Also

viewed as equalizing agents.

Unions emphasize seniority-based rewards, and collective

bargaining often arises in work settings where it is difficult to

discern the relationships between worker characteristics and

rewards.

Good jobs are concentrated in ''core'' or monopolistic firms and

industries. Explained by: technical mix; level of union and

management interests in employment stability; ability to absorb

higher labor costs due to market structure and demand schedules;

growth, concentration, and change in organization forms; differences

in the quantity and quality of managerial activity; and economic and

political relationships with the state and foreign markets.

Models of Employer Decision-Making

Human Capital: workers possess vocational aspirations, which

are treated as exogenous, and invest in human capital so as to

maximize their utility and earnings, subject to various

constraints (e.g. innate ability). Firm's labor needs are 15

determined by its technology (capital-labor ratio) and product

demand. 

Marxian idea that ''control imperative'' shapes employment

relations Contemporary models reject the underlying

assumptions that both the worker and the firm have perfect

information and pursue a maximizing strategy their personnel

decisions.

Organizations face greatest uncertainty in evaluating employee

potential early n their careers. How do employers cope with this

dilemma?

-Education is one credential representing employee potential

under imperfect information. Marxists argue that employers are

motivated by a need to control the work force and use schooling

to determine whether workers' values and traits are appropriate

for the organizational control system in place.

Kanter's idea of ''homosocial reproduction'' - similarities worth

sex, race, social background and family status indicate whether

someone can be trusted and whether communication with

him/her will be easy wheat grains are not available their

personnel decisions.

Organizations face greatest uncertainty in evaluating employee

potential early n their careers.

How do employers cope with this dilemma?

Education is one credential representing employee potential

under imperfect-information. Marxists argue that employers are

motivated by a need to control the work force and use schooling to

16

determine whether workers' values and traits are appropriate for the

organizational control system in place.

Kanter's idea of ''homosocial reproduction'' - similarities wrt sex,

race, social background and family status indicate whether

someone can be trusted and whether communication with

him/her will be easy.

17

REFERANCE:

Subject : Business Combination.

1.ttp://wiki.answer.com/Q/Definition_of_business_combination#

2.http://wiki.answers.com/Q/

What_is_the_difference_between_horizontal_integration_and_vertical_in

tegration#ixzz1wyDrYf00

3.http://wiki.answers.com/Q/

What_is_the_difference_between_merger_and_amalgamation_in_India#i

xzz1wjqrXRRW

4.http://wiki.answers.com/Q/

What_is_the_difference_between_merger_and_amalgamation_in_India#i

xzz1wjqrXRRW

5.http://wiki.answers.com/Q/Defination_of_merger#ixzz1wy7EnG2o

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