Conglomerate Mergers
Ebru DEMİRHAN
In order to expand business, reduce costs, or increase market power, entrepreneurs often seek to merge or acquire other firms. Mergers may be a threat to competition, depending on the type of the merger and the size and strength of corporations involved. In recent years, global economic growth both in Europe and across the industrialized world has put the “competition issue” in the center of discussions. For that reason, one must bear in mind that the issues and controversies are to be taken into consideration while building up the bridges in multi-jurisdictional merger regimes.
Besides horizontal and vertical mergers, conglomerate mergers, which have secondary effects on competition, are widely dispersed in the multilateral economical relations while integration into different markets through cross-subsidize from one product to another. A conglomerate merger is one that brings together firms, which do not compete with each other in any product market. Conglomerate mergers may be divided into three types: product line extensions (where one firm by acquiring another, adds related items to its existing products); market extensions (where the merged firms previously sold the same products in different geographical markets); and pure conglomerates (where there is no functional and economic link whatever between the merged firms).1
Under U.S. Law Aspect
In theory, there is a disagreement on the effect of conglomerate mergers on competition.2 As per the US Antitrust Law, where there is a wealth of literature on conglomeracy, the Supreme Court foresees to hinder such mergers and takeovers if there is an outstanding elimination of potential competition or have a distorting and deleterious impact on the competition so that the reciprocal purchase and sale among the parties is alleviated. Through such mergers, an enterprise which is not active in that of the acquired firm’s business or geographical market prefers to make an investment to obtain a satisfactory market share rather than enter into the market independently. Nonetheless, this activity may dissuade new entrants and discourage active competition from the firms already in the industry.3 A conglomerate merger may also reduce the number of small firms and strengthen the acquired firm’s economical and political power.
