3.2.2 Mergers and Takeovers Flashcards
merger
2 businesses agree to join together to make 1 new business/company
combination of 2 previously separate firms which is achieved by forming a completely new firm into which 2 original businesses are integrated
inorganic growth
how does JV and mergers aid global expansion
gain expertise and local knowledge
share resources
financial EOS
but issue with corporate culture
takeover
one business purchases another business
1 business is bought by another and absorbed into that business
diversification
2 businesses join together from completely different industries
outsourcing
firm pays another business or third party to complete some of its business processes
horizontal integration
2 businesses join together in same industry from same production stage
vertical integration
(forwards and backwards)
2 businesses join in same industry but different production stages
adv and dis of mergers
adv:
EOS are shared from being bigger business
greater market share as joining comp
easier to raise finance jointly as a larger business
benefit from cost and revenue synergy (pros of being 2 businesses) = increase customer base and increased promotion
dis:
unsuccessful if brands too different and don’t integrate well
hard to integrate 2 business to work alongside one another culture difference
some smaller scale redundancies may needed due to duplicate roles
adv and dis of takeovers
adv:
quick method of growth as clear control
increase market share due to eliminating competitor
dis:
could be hostile hard to bring existing staff on board
acquiring company = create competition offer especially if purchase company is struggling
communication problems as staff not receptive to new owners
no experience of market in which they are purchasing
reasons for a joint venture or merger
- spread risk over different countries/regions
- enter new market/trade bloc
- acquire national/international brand names/patents
- secure resources/supplies
- maintaining/ increasing global competitiveness
inorganic growth
growth which occurs as a result of taking over or merging with another business it does not occur from within
integration
when 2 businesses join together
(describes direction through which this happens)
- vertical forwards integration
- vertical backwards
- horizontal
- conglomerate
vertical forwards integration
joining with a business further up in supply chain e.g. manufacturer buys a distributor (closer in supply chain) = towards the customer
e.g. Nov 2015 apple buy Star Wars motion = capture company face shift
primary -> secondary
secondary -> tertiary
adv: control distribution (guarantee outlet of product placement and control promotion), keep profits (higher margins) , in direct control with customers, cutting out middle man (managerial)
dis: no EOS, Dis EOS in communication (co-ordinate with smaller firms), consumers = less choice 1 product determines an outlet
vertical backwards integration
joining with a business operating earlier in the supply chain e.g. retailer buys a wholesaler
e.g. Nov 2015 Ikea buys Romanian Baltic Forests to control raw materials
secondary -> primary
tertiary -> secondary
adv: control of raw materials (cheaper) = bargaining power , limit comp supplies and control over quality
dis: complacent, less incentive to increase efficiency (cost of production cheaper), quality decrease no supplier competition
horizontal integration
joining with a business at the same stage of supply chain
e. g. manufacturer buys a competitor e.g Disney and Pixar
e. g. primary sector joins with another business in primary
adv: EOS, knowledge of the mkt, eliminate competition, increase MS, decrease competitors, purchasing EOS, cost saving (heaving job losses) diversification
dis: culture clash, expensive, decrease flexibility, risk dis EOS, merger risk = destroy SH value, risk of attracting investigation from comp authorities
