When two businesses cooperate to become a larger entity, they can legally merge. Merging is ideal because it’s the result of a mutual effort. Unlike an acquisition or takeover, mergers result from two sides setting expectations and reaching their goals together. However, some mergers aren’t granted due to a conflict they’ll cause with local competition. In these rare instances, the merger will be denied.
When becoming a monopoly
Anytime a merger poses the risk of becoming a monopoly, it will be denied. Since two businesses have an agreement, the reasons a merger could be denied are few. However, when the conflict of interest in a merger can influence a larger market, caution will be taken by a judge. A merger should only be pursued when it doesn’t threaten public competition.
Since two competitors combine during a horizontal deal, market competition can be drastically affected. Horizontal mergers occur when two agencies are on the same “horizon.” Though it’s a typical way to merge two businesses, extreme cases result in the two biggest competitors becoming one.
A vertical merger is achieved if two businesses have a supplier-retailer relationship. This can be great for business, for lower production costs are sure to increase future profit margins. However, if the supplier involved would be taken from other businesses in the market, then too much control could be gained by acquiring the supplier.
Looking for healthy competition
Some mergers occur as a response to new competitors entering a market. Business law in Utah gives companies the right to merge only when it won’t disrupt public competition, so it’s important to keep your business market in mind as you consider your company’s growth.