A merger occurred between two companies which are engaged at different stages in the production process. Which kind of Merger is being talked about?

Solution

A vertical merger takes place when two companies that previously sold to or bought from each other combine under single ownership. The companies are generally at different stages of production. A manufacturer may decide to merge with a supplier of important components or raw materials, for example, or with a distributor or retailer that sells its products. When the supplier acquires the customer, it is an example of forward integration . When the customer acquires the supplier, it is an example of backward integration . The main aim of a vertical merger is not to increase revenue, but to improve efficiency or reduce costs.