3.2.2 Mergers And Takeovers

Question 1

What is backward vertical integration

Answer 1

Joining with a business in the previous stage of production

Question 2

What is forward vertical integration

Answer 2

Joining with a business in the next stage of production

Question 3

What is integration

Answer 3

The joining together of the two businesses as a result of a merger or takeover

Question 4

What is Merger

Answer 4

Occurs when two (or more) businesses join together and operate as one

Question 5

What is Synergy

Answer 5

The combining of two or more activities or business creating a better outcome than the sum of the individual parts

Question 6

What is takeover

Answer 6

The process of one business buying another

Question 7

What is vertical integration

Answer 7

The joining of two businesses at different stages of production

Question 8

Reasons for mergers and takeovers?

Answer 8

• One of the main motives for integration is to exploit the synergies that might exist following a merger or takeover
• It is quick and easy way to expand the business. For example buying a company that already owns some stores and convert them.
• cheaper than growing internally
• respond to economic change

Tactical
1. Attempt to ensure increased market share
2. Access to technology, staff or intellectual property

STRATEGIC

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

Question 9

Benefits of mergers

Answer 9

• a common knowledge of the markets in which they operate
• less likelihood of failure than merging two different areas of business
• similar skills of employees
• less disruption

Question 10

What are problems of rapid growth?

Answer 10

• Drain on resources - can cost a lot of money.
• coping with change - different to impose a new culture on a business and there may be resistance.
• the alienation of customers - might lose touch with their customers
• loss of control - loss of control as diseconomies of scale in.
• shortages of resources - demand for resources may drive up prices. This may happen when there is a shortage of skilled labour and wages driven up.

Question 11

Horizontal integration example

Answer 11

Just Eat and Hungryhouse allow customers to order food from local takeaways but orders are delivered by staff from the individual restaurants – CMA are currently investigating this merger

Question 12

Organic growth?

Answer 12

when a business grown internally through buying another factory or increasing premises and staff

Question 13

Inorganic growth

Answer 13

when a business grows externally through a merger or acquisition

Question 14

What is a hostile take-over ?

Answer 14

If the deal is unwanted by the management or board of directors then this is a “hostile take-over”