3.2.2 Mergers and takeovers

Question 1

What is a merger?

Answer 1

A legal deal to bring two businesses together under one board of directors.

Question 2

What is a take-over?

Answer 2

Takeover (acquisition) is a legal deal where one larger business purchases a smaller one.

Question 3

What are the 2 tactical reasons for mergers and takeovers?

Answer 3

1.) Attempt to ensure ^ market share.
2.) Access to technology, staff or intellectual property.

Question 4

What are 3 strategic reasons for mergers and takeovers?

Answer 4

1.) Access to nee markets
2.) Improved distribution networks
3.) Improved brand awareness

Question 5

How can we distinguish a merger from a takeover?

Answer 5

A merger is when two businesses have agreed to join forces to make a third company.

Question 6

What is a friendly takeover?

Answer 6

A business may be struggling with cash flow problems and invite a takeover from a stronger business.

Question 7

What is a hostile takeover?

Answer 7

The board of directors will try an resist the takeover, but if another business gets 51% shares they can takeover management + control.

Question 8

What are the 3 sectors in business?

Answer 8

1.) Primary sector
2.) Secondary sector
3.) Tertiary sector

Question 9

What is horizontal integration?

Answer 9

Businesses operating in the same sector merge or takeover another business in the same sector.

Question 10

What is vertical integration?

Answer 10

When one business in one sector takes over or mergers with a business in another sector or part of the supply chain.

Question 11

What are the financial risks of mergers and takeovers?

Answer 11

-Original purchase cost
-Cost of change into a new business
-Redundancies of duplicate staff
-Cost if it all goes wrong

Question 12

Financial rewards of mergers and takeovers?

Answer 12

• ^ revenue
  -EOS

Question 13

What are the short-term problems of rapid growth?

Answer 13

-May outgrow premises = inefficient work
-Morale may drop due to extra work = decrease in productivity.
-May be a shortage of cash to meet expansion costs.
-Added pressure on premises + staff.

Question 14

What are the issues with management pressure due to rapid growth?

Answer 14

-May operate reactively rather than proactively
-Quality could drop
-Business may even lose consumers to competitors
-Staff turnover could ^ due to heavy workloads
-Staff could leave, knowledge lost + new costs for training

Question 15

What are the problems with mergers and acquisitions?

Answer 15

-Clash of cultures
-Communication problems
-Issues of control, though a move away of origins
-Unreliable merger partners
-DEOS
-Lack of understanding of local markets = poor promotion
-75% of all mergers fail