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

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

Question 3

What are the tactical reasons for mergers + take-overs?

Answer 3

^ market share
-Access to staff, technology or intellectual property.

Question 4

What are the strategic reasons for mergers + takeovers?

Answer 4

-New markets
-Improved distribution networks
-Improved brand awareness

Question 5

What distinguishes a merger from a take-over?

Answer 5

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

Question 6

What is a friendly take-over?

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 take-over?

Answer 7

The directors will try resist takeover, but if another business gets 51% shares they can take-over management + control.

Question 8

What are the 3 business sectors?

Answer 8

-Primary
-Secondary
-Tertiary

Question 9

What is horizontal integration?

Answer 9

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

Question 10

What is vertical integration?

Answer 10

When one business in one sector takes over or merges with a business in another sector.

Question 11

What are the financial risks of mergers and takeovers?

Answer 11

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

Question 12

What are the financial rewards of mergers and take-overs?

Answer 12

^ revenue
-Economies of scale

Question 13

What are the short term problems of rapid growth?

Answer 13

-The businesses that merged may outgrow their premises.
-Morale + productivity may drop if staff can’t handle extra work.
-May be a shortage of costs to meet expansion costs.

Question 14

How is management pressure a problem due to rapid growth?

Answer 14

-Managers may act reactively rather than proactively.
-Quality could drop = unhappy customers.
-Staff turnover may ^ due to heavy workloads.
-Staff could leave = more training costs.

Question 15

What are the problems with mergers and acquisitions?

Answer 15

-Clash of cultures
-Communication problems
-Move away from original competencies may cause issues of control
-Unreliable merger partners
-Diseconomies of scale
-Lack of understanding of local markets = poor promotion
-75% of all mergers fail