3.2.2 Mergers And Takeovers 🕴

Question 1

What is a merger?

Answer 1

When two or more companies join together and operate as one

Question 2

What are the 5 reasons as to why businesses want to merge ? I

Answer 2

1. Strategic fit - might acquire a new company to break into new markets
2. Economies of scale - growth causes this - allows companies to reduce costs and increase efficiency
3. Synergies - benefits that occur from combining 2 companies - reduce costs and increase efficiency
4. Elimination of competition - increase In Market share
5. Shareholder value - shareholders benefit - more revenue - More dividends - Increase in stock prices

Question 3

What are the negatives of mergers? 

Answer 3

Financial risk

-Overpayment acquiring company because too much - ❌ recoup investment -through revenue or cost savings

Integration challenges- costly disruptions in operations

Resistance from employees - loss of jobs
due to resources duplicating

Cultural differences- clash with company
Cultures
productivity decreases
loss of valuable employees
and financial reward 

Regulatory hurdles -opposition from stakeholders other operations - CMA

Debt - acquiring company - get debt - increase in financial risk decrease in flexibility

Question 4

What are the positives of mergers ?

Answer 4

Financial reward -

Increase market share- increase in sales and profitability

Synergy - cost saving
no duplication of operations
increased efficiency and profitability

Diversification - selling wider variety decreases risk of selling one product

Access to Newmarket-if new company have a strong presence in the market

increase your customer base

and increase SR

Increased value - merger overall value of business increase

Question 5

What do you takeovers Acquire?

Answer 5

Control

Question 6

What are the two kinds of takeovers?

Answer 6

Friendly - business struggling with cash flow Problems

invite take over from a stronger business -“White knight”

rescues the struggling business

Hostile - directors restrict takeover have over 51% ownership of shares?

Can take over management and control

Question 7

What are the three kinds of integration?

Answer 7

Horizontal- Same business at the same stage of production join together

and vertical- Two businesses at different stages of production join together

Backwards vertical integration - business merges with a business behind them in production process

Question 8

What are the problems with rapid growth organic and inorganic growth?

Answer 8

outgrow your premises diseconomies of scale not enough space

Moral may drop - lose contact with customers decrease in productivity

decreases shortage of cash unable to meet explanation cost ❌ working capital overtrading

management is under pressure no expertise to know decrease productivity

quality of products decrease - lose individual touch

staff turnover due to heavy workload

Question 9

What are the problems with inorganic growth?

Answer 9

Clash of cultures

communication problems - moving away from core competencies of business business

unreliable mergers

Diseconomies of scale

lack of industry understanding of local markets

Overtrading