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CA Final · Advanced Financial Management · Mergers, Acquisitions and Corporate Restructuring

Sundaram Textiles Ltd, a yarn manufacturer, acquires Kaveri Cotton Ginners Ltd, which supplies its raw cotton. In classifying this merger by the relationship between the combining firms, it is best described as:

This is a vertical merger, because the acquirer combines with its own raw cotton supplier, which operates at an earlier stage of the same production chain. Horizontal mergers involve direct competitors, while conglomerate mergers involve unrelated businesses.

  1. AHorizontal merger
  2. BVertical mergerCorrect
  3. CConglomerate merger
  4. DConcentric merger

Explanation

The acquirer merges with its own supplier, so the two firms are at different stages of the same production chain. This is a backward vertical merger. A horizontal merger would need both firms to compete in the same line of business at the same stage.

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