3.2.2 Mergers + takeovers

Question 1

define merger

Answer 1

occurs when 2 or more companies combine to form a new company
-originals cease to exist - assets + liabilities r transferred to newF

Question 2

Define takeover

Answer 2

-occurs when one company purchases another against will
-acquiring company buys a controlling stake in target company’s shares (over 50%) + gains control over operations

Question 3

what r some reasons for m’s/t’s?

Answer 3

-strategic fit (expand into new markets may acquire)
-economies of scale (allowing companies to reduce costs + increase efficiency)
-synergies (benefits that result from merger like increased rev + costs)
-elimination of comp (increase MS)
shareholder value

Question 4

what are economies of scale?

Answer 4

cost advantages for companies when company becomes more efficient

Question 5

types of integration

Answer 5

vertical, horizontal and conglomerate

Question 6

what is vertical integration

Answer 6

when a bui merges/takes over another business within supply chain/production process

Question 7

give an example of vert integ

Answer 7

supplier m/t’s with retailer

Question 8

define forward vertical integration

Answer 8

involves merger/takeover with a firm further forward in supply chain (dairy farmer with ice cream manufacturer)

Question 9

define backwards vertical integration

Answer 9

mergers/takeovers further backwards in supply chain (ice cream retailer with ice cream manufacturer

Question 10

Define horizontal integration

Answer 10

When 2 businesses m/t at the same stage of the production process (retailer with retailer)
Ice cream supplier buys another ice cream supplier

Question 11

Define conglomerate integration

Answer 11

When 2 unrelated businesses merge/takeover
-to expand/diversify markets
-to spread risk due to more products/markets

Question 12

Examples of conglomerate

Answer 12

Amazon buying whole foods
Tesla buying twitter
Bid pens buying razors

Question 13

Forward Vertical advantages

Answer 13

-employees have job security as they will have a constant supply
-reduce prices

Question 14

Forward vertical integration disadvantages

Answer 14

-consumers may resent brand if prices increase

Question 15

Backwards vertical integration advantages

Answer 15

-closer links to supplier - quickly obtain supply

Question 16

Backwards vert integ disadvantages

Answer 16

-complacent -no contact - always going to supply so quality may drop as doesn’t need to maintain relation (e.g late delivery)

Question 17

Horizontal integration advantages

Answer 17

-gain of knowledge/expertise
-reduces comp

Question 18

Horizontal integration disadvantages

Answer 18

-culture clash (different ways of doing things so difficult to adapt) = conflict
-costs increase = unesacary duplication of roles so increases diseconomies of scale

Question 19

Conglomerate integ advantages/disads

Answer 19

Risk bearing economies of scale
Lack of knowledge of unrelated markets (likely to fail)

Question 20

rapid growth issues

Answer 20

-loss of control
-strained communication
-culture clash
-difficulty managing business
-decreased job security for employees

Question 21

reasons why businesses may stay small

Answer 21

-to build relations with employees
-easier to manage/make decisions
-easier to keep costs low
-high quality customer service