Can large companies simply buy large companies from smaller industries in order to a) get passive income and b) have alternate industries to fall back on?

Question

EDIT: And they just leave those sub companies as they are (provided they are already making profit), so the only thing that changes it that the excess profit could go to the whole company; they leave it to function the same

ALSO EDIT: Not necessarily passive income (mb) but just to expand the larger companies reach- theoretically could one country have non-negligible stakes in every major industry through this method?

Thank you all this was actually very helpful 😀

In: Economics

Answer 1

Many of them do, but passive incomes are usually not the primary goal.

If they want to own a company, they need to buy the current owners out, who wouldn’t consider that unless they make significant profits out of the deal, i.e. the acquiror has already lost money on the deal.

To make it viable, the acquiror has to make up for the premiums by making the acquiree more profitable or it must benefit them in other ways. For example, if company A accounts for 70% sales of company B, by acquiring company B, future purchases will be made at the cost of ingredients.