3.2.2 Mergers And Takeovers

Question 1

define a merger

Answer 1

when two businesses join together to form one business

Question 2

define a takeover

Answer 2

• when a business buys at least 50% of another business’ shares and gains control of operations

Question 3

reasons for a merger or takeover

Answer 3

• to increase market share
• to gain access to technology, staff or intellectual property
• to gain access to new markets
• improved distribution networks
• improved brand awareness

Question 4

takeovers can be both friendly and hostile

Answer 4

friendly- when a business is close to failing and needs to be taken over
hostile- the board of directors will try and resist the takeover

Question 5

what is horizontal integration

Answer 5

• when a merger or takeover takes place at the same stage of production

Question 6

what is vertical intergration

Answer 6

• when a merger or a takeover of another firm in the supply chain
• can be forward in the supply chain
• can be backwards in the supply chain

Question 7

mergers and takeovers are examples of inorganic growth as it comes from outside the business

Answer 7

-

Question 8

what are the advantages of vertical intergration

Answer 8

• this reduces costs
• reduces risk as the business has more control of the supply chain
• the quality can be better controlled

Question 9

what are the disadvantages of vertical intergration

Answer 9

• diseconomies of scale could potentially occur
• culture clash between businesses
• price paid for the firm may take time to recoup

Question 10

what are the advantages of horizontal intergration

Answer 10

• rapid increase of market share
• EOS could allow for lower unit costs
• reduces competition
• firm may gain new knowledge or expertise

Question 11

disadvantages of horizontal integration

Answer 11

• diseconomies of scale
• culture clash

Question 12

what are the financial rewards of mergers or takeovers

Answer 12

• more market share
• cost savings
• diversification, wider range of products
• access to new markets
• increased value

Question 13

what are the financial risks of mergers and takeovers

Answer 13

• overpayment, the company may pay more than the other company is worth
• cultural differences
• may face opposition from other stakeholders, like customers

Question 14

what problems can arise from rapid inorganic growth

Answer 14

• strain placed on cashflow
• increased management complexities
• quality control issues
• customer service issues
• culture clash
• diseconomies of scale