3.2.2 Mergers and takeovers

Question 1

what are tactical reasons of a merger?

Answer 1

-ensure an increase in market share
-access to technology
-access to staff
-access to intellectual property such as patents

Question 2

what are strategic reasons of a merger?

Answer 2

-access to new markets
-improved distribution networks
-improved brand recognititon

Question 3

possible reasons for takeovers…?

Answer 3

-increase market share
-acquire new skills
-access EOS
-acquire intangible assets
(brands, patents, trademarks)
-spread risk by diversifying
(eggs aren’t all in one basket)
-overcome barriers to entry to target markets
-defend itself against a takeover threat
(let a different business do a friendly takeover)
-eliminates competition

Question 4

why might takeovers be preferred?

Answer 4

-business lacks knowledge or resources to develop organically
-speed of growth is high priority

Question 5

drawbacks of takeovers…?

Answer 5

-high cost involved
(includes opportunity cost)
-upset customers and suppliers
(can lose their power)
-problems of integration
(changing management)
-resistance from employees
(lack of motivation -> absenteeism
-> increases unit costs)
-high failure rate

Question 6

why do takeovers fail?

Answer 6

-poor communication
-price paid was too high
-cultural incompatibility

Question 7

what is a merger?

Answer 7

a combination of two separate firms which is achieved by forming a completely new firm into which the two businesses are integrated

Question 8

what is a takeover?

Answer 8

involves one business acquiring 50% or more of another business

Question 9

problems with mergers are…?

Answer 9

-culture clash
(different leadership styles)
-communication problems
-DEOS
-lack of understanding of local markets leading to wrong promotional message
-possible move away from core competencies of original businesses may cause issues of control

Question 10

benefits of merging…?

Answer 10

-EOS
-diversification
-synergies
-cross selling
-acquiring skills and resources
-easy way to expand scope ad size of market share
-international expansion
(allows to enter trade blocs, avoid cultural issues, easier to buy)
-increased revenue and market share

Question 11

what are synergies?

Answer 11

when the combined company is worth more than the sum of its parts
(includes cost reductions by removing duplicate departments)

Question 12

what is cross selling?

Answer 12

when two companies sell each others products and services
(increases sales)