3.2.2 mergers and takeovers Flashcards
Methods of external growth include
mergers
takeover
define Integration
The bringing together of two or more businesses
describe merger
When two or more businesses agree to become integrated to form one business under joint ownership
An agreement
describe takeover
When one business gains control over another and becomes the owner, can be achieved by buying 51% of the shares
Can be hostile
External growth through mergers and takeovers can take a number of forms, which include
horizontal
vertical
describe vertical merger or takeover
2 businesses at different stages within a process integrate
describe horizontal merger or takeover
2 businesses at the same stage within a process integrate
describe Forward vertical merger or takeover
Forward vertical – joins with a business at the next stage in the process e.g. manufacturer with a retailer
describe Backward vertical merger or takeover
Backward vertical - joins with a business at an earlier stage in the process e.g. a manufacturer with a supplier of a raw material
describe Conglomerate
Conglomerate - 2 unrelated businesses integrate
Reasons for external growth
Secure supplier Secure outlet Gain foothold Benefit from expertise Brand recognition Synergy Achieve corporate objectives
Financial risks and rewards of merger or takeover
Legal and regulatory procedures
Cost of integrating the internal operations e.g. changing culture, training, relocation, redundancies
Financing of the merger or takeover e.g. equity or debt and related costs
Research prior to pursuing the acquisition
Impact on share value
Problems of rapid growth
Overtrading Cultural clashes Gearing Shot termism by shareholders Conflicting messages to customers and other stakeholders Uncertainty within the workforce Loss of control Strain on resources
