3.2.2 Mergers and takeovers Flashcards
What is a merger?
A mutual decision of two companies of a similar size that combine and become one larger entity with synergy.
What is a takeover?
Occurs when one larger business buys the majority of the shares in another and therefore achieves full management control.
What is a hostile takeover?
a takeover of a company whose is actively against the takeover deal. Involves directly negotiating with stakeholders ignoring the board of directors.
What is a conglomerate?
a cooperation made up of a number of different, unrelated businesses
What is a strategic alliance?
An arrangement between two companies whom agree to share resources to accomplish a specific mutually beneficial project. This is less binding than a joint venture.
What are the positives and negatives of merging?
+ economies of scale, profits enable more R+D, new management, bigger marketing, possible monopoly?
- ability to charge higher prices, diseconomies of scale, less customer choice, job losses, culture clash, redundancies, strayed aims,
What are the positives and negatives of a takeover?
+ increased revenues, transferable skills, market share, secure better distribution, overcome barriers to entry, eliminate competition
- negative PR, costs of gaining 51% shares, culture clash and management altercations, adhere to new objectives
What is synergy?
benefits of two or more things coming together
Why do businesses takeover/merge?
- achieve E.O.S
- receive synergies
- reduces competition
- diversification
- market power
- create high barriers to entry
- combine expertise
Why are some overall issues with merging/takeovers?
- clash of cultures, redundancies, changed objectives, industrial action, poor internal working environment, training, opportunity costs, rebranding costs.
What is integration?
when two businesses join
What are the ‘directions’ (types) of integration?
- vertical forward
- vertical backwards
- horizontal
- conglomerate
Explain vertical forward integration?
When a business acquires a business further up the supply chain.
Explain vertical backwards integration?
When a business acquires a business operating earlier in the supply chain
Explain horizontal integration?
When a business acquires a business at the same stage in the supply chain. Always into the same industry
