3.2.2 mergers and takeovers

Question 1

what is a merger?

Answer 1

occurs when two or more companies combine to form a new company

Question 2

what is a takeover?

Answer 2

occurs when one company purchases another company

Question 3

reasons for mergers and takeovers

Answer 3

• synergies (the greater benefits that result from the combination of companies)
• economies of scale
• can be cheaper than growing internally
• can allow growth globally
• eliminate competition
• increase shareholder value

Question 4

types of integration

Answer 4

vertical & horizontal

Question 5

what is the order of distribution?

Answer 5

supplier - manufacturer - distributor - retailer - end consumer

Question 6

what is forward vertical integration?

Answer 6

a merger or takeover with a firm further forward in the supply chain e.g dairy farmer merges with an ice-cream retailer

Question 7

what is backward vertical integration?

Answer 7

a merger or takeover with a firm further backwards in the supply chain e.g ice-cream retailer merges with an ice-cream manufacturer

Question 8

what is horizontal integration?

Answer 8

when a company merges of takes over at the same manufacturing stage

Question 9

disadvantages of integration

Answer 9

• culture clash
• dis-economies of scale
• costly

Question 10

problems caused by rapid growth

Answer 10

strain on cash flow, diseconomies of scale, organisational problems, quality control issues