IAI Actuarial Core Principles · Business Finance · Corporate growth, restructuring and divestment
Tarini Foods Ltd, a biscuit manufacturer, acquires Ghee Gold Ltd, a dairy company that supplies it with a major raw material. How is this acquisition best classified?
This is a vertical merger, specifically backward integration. The acquirer buys a supplier at an earlier stage of its own production chain. It is not horizontal because the two firms do not compete, and it is not conglomerate because the businesses are related.
- AHorizontal merger
- BVertical mergerCorrect
- CConglomerate merger
- DManagement buy-out
- Reverse takeover
Explanation
A vertical merger joins firms at different stages of the same supply chain. A dairy supplier being bought by a biscuit maker is backward integration. A horizontal merger would need competitors in the same line, and a conglomerate merger would need unrelated businesses.
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