3.2.2 Mergers And Takeovers

Question 1

Define merger

Answer 1

A legal deal to bring 2 businesses together under one board of directors

Question 2

Define take-over

Answer 2

A legal deal where one larger business purchases a smaller one.

Question 3

What are the reasons for mergers and takeovers?

Answer 3

Tactical
- increased market share
- access to technology, staff, intellectual property

Strategic
- access to new markets
- improved distribution networks
- increased brand awareness

Question 4

What are the 3 sectors in business?

Answer 4

Primary - businesses involved in mining, fishing (eg farm)

Secondary - businesses involved in manufacturing raw materials into other products (eg clothes factory)

Tertiary - businesses that sells goods to the customers (eg shops)

Question 5

What is horizontal integration?

Answer 5

When businesses operating in a sector takeover another business in that same sector.

Question 6

What is vertical integration?

Answer 6

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

Question 7

What are the financial risks of mergers and takeovers?

Answer 7

- original purchase cost
- cost of change into a new business
- staff redundancies
- costs if the business fails

Question 8

What are the financial rewards of mergers and takeovers?

Answer 8

- Increased revenue
- EOS

Question 9

What are the short term problems of rapid growth?

Answer 9

- shortage of cash to meet expansion costs
- more pressure on staff
- decreased productivity