3.2.2-Mergers And Takeovers

Question 1

Definition of a merger

Answer 1

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

Question 2

Definition of a take-over

Answer 2

• Take-over is also known as an acquisition
• This is a legal deal where one larger business purchases a smaller one

Question 3

Tactical Reasons for mergers and takeovers

Answer 3

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

Question 4

Strategic reasons for mergers and takeovers

Answer 4

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

Question 5

Friendly Takeover

Answer 5

A business may be struggling with cash flow problems and invite a takeover from a stronger business – known as a “white knight” as they come in to rescue the struggling business

Question 6

Hostile Takeover

Answer 6

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

Question 7

Horizontal and Vertical Integration- Business Sectors

Answer 7

Primary - Fishing,Digging,Mining, Farming
Secondary - Taking raw materials and making things
Tertiary - Selling goods to customers

Question 8

Horizontal Integration

Answer 8

Merging with a company in the same sector as you or taking over a company in the same sector as you

Question 9

Vertical integration

Answer 9

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

Question 10

Financial risks of mergers and takeovers

Answer 10

-original purchase cost
-cost of change into a new business
-redundancies of duplicate staff
-cost if it all goes wrong

Question 11

Financial rewards of mergers and takeovers

Answer 11

-increased revenue
-Economies of Scale

Question 12

Short Term Problems of rapid growth

Answer 12

• The businesses that have merged may outgrow their premises in the short- term. There may not be enough space for everyone to work efficiently.
• Morale may drop if staff cannot cope with the extra work so productivity can decrease.
• There may be a shortage of cash to meet expansion costs.
• Taking on more and more work to generate more income places additional pressure on the premises and staff.

Question 13

Problems of rapid growth - management pressure

Answer 13

• Management may be under pressure, operating reactively rather than proactively.
• The quality of the products and services could drop, causing an increase in customer complaints.
• The business may even lose customers to their competitors.
• Staff turnover may increase due to heavy workloads. Vital knowledge could be lost as staff leave. Hiring and training new staff takes time and money.

Question 14

Problems with mergers and acquisitions

Answer 14

• Clash of cultures
• Possible communication problems
• Possible move away from core competencies of original business may cause issues of control
• Unreliable merger partners
• Diseconomies of scale
• Lack of understanding of local markets leading to wrong promotional message
• 75% of all mergers fail