Vertical Merger

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What is a 'Vertical Merger'



A vertical merger is the merger of two or more companies involved at different stages in the supply chain process for a common good or service.  Most often, the merger is purposed to increase synergies, gain more control of the supply chain process, and increase business.  Also, it often results in reduced costs and increased productivity and efficiency.


For An Example

An example of a vertical merger is a car manufacturer purchasing a tire company. Such a vertical merger reduces the cost of tires for the automaker and potentially expands its business by allowing it to supply tires to competing automakers. This example shows how a vertical merger can be twice as beneficial to the company conducting the integration. Initially, the firm benefits from reduced costs, which lead to increased profits. The second benefit is an expansion in revenue streams that also increases the bottom line.  A notable vertical merger was the 1996 merger of Time Warner Inc., a major cable company, and the Turner Corporation, a major media company responsible for CNN, TNT, Cartoon Network, and TBS.  In 2018, a merger between Time Warner and AT&T was finalized but not without intense scrutiny.  As of July 2018, the United States federal government filed a notice to appeal the merger, citing the deal would seriously stifle competition and harm consumers.

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