Question

Assume that HotLap, Inc., a manufacturer of laptop computers, is considering a merger with SassyChips, a leading producer of computer chips. HotLap believes such a merger would benefit their business by giving them a guaranteed steady supply of the chips they need to make their laptops, and more control over the way those chips are designed. If this merger occurs, it would be an example of:____________.

1. contract manufacturing.
2. a vertical merger.
3. a conglomerate merger.
4. a franchise arrangement.
5. a horizontal merger.
6. a leveraged buyout.

Answer 1

Option B

Step-by-step explanation:

In simple words, vertical merger refers to the joining of the two separate entities that provide value to different level of supply chains. Such mergers are implemented by the entities to take advantage of realized synergies.

These mergers provide many benefits such as reduced cost or steady supply but the acquiring entity gets the burden to operate a separate entity and manage it.