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Difficulty: MediumBusiness Combinations: Mergers, Acquisitions, Holding, and Subsidiary Companies

A petroleum refining enterprise expands its operations by acquiring a crude oil shipping fleet to secure raw transport and a chain of retail petrol stations to sell finished fuel directly to consumers. Which type of business combination is illustrated by this strategic expansion?

  1. Vertical integrationAnswer
  2. B
    Horizontal integration
  3. C
    Cartel arrangement
  4. D
    Conglomerate combination

Answer

Vertical integration is the correct classification for combining businesses across consecutive stages of production and distribution.
Vertical integration occurs when a business combines with other firms at different, sequential stages of the same industry's supply and distribution chain. Acquiring crude transport (upstream supply) and retail stations (downstream distribution) secures control from raw material handling to final sales.

Step-by-Step Solution

1
Analyze the operational relationship between the acquiring firm and the acquired businesses.
The enterprise operates in petroleum refining (midstream processing), acquires shipping logistics for crude oil (upstream supply), and retail stations (downstream sales).
Identifying the supply chain positions determines whether the combination moves across levels of production or across separate industries.
2
Map the relationship to the appropriate business combination classification.
Combining sequential stages of production, processing, and distribution into one company constitutes vertical integration (backward to crude shipping and forward to retail distribution).
Vertical integration specifically links complementary stages of supply and distribution under unified control.

Key Concept

Vertical Integration in Business Combinations
Estimated Time:1m 0s
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Topics

Business Combinations: Mergers, Acquisitions, Holding, and Subsidiary Companies

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