9.1b Mergers and Takeovers Flashcards
Merger definition
When two businesses join together
What happens to a shareholders shares in a merger?
Shareholders of each company have their shares in the old company exchanged into the same number of shares in the merged company
Takeover definition
When a business buys a majority shareholding and takes control of another business
What are the two types of takeovers?
- Friendly
- Hostile
What happens to a shareholders shares in a takeover?
The shareholders will be offered a cash price per share they own or will convert their shares into shares in the buying company, at a lower rate
Three forms a merger or takeover can take:
- Vertical integration
- Horizontal integration
- Conglomerate integration
Vertical integration definition
The joining of two firms in an industry who are at different stages of the production process
Advantages of backwards vertical integration:
- Easier to plan with suppliers
- Saves costs
- Build barriers to entry
Example of backwards vertical integration:
A sheep fur jacket manufacturer buying a sheep farm
Horizontal integration definition
The joining of two firms in an industry who are at the same stages of the production process
What does horizontal integration result in?
Less competition
Example of horizontal integration:
Facebook buying instagram
Conglomerate integration definition
The joining of two firms who operate in different markets
Example of conglomerate integration
Kraft and Cadbury
Why do mergers/takeovers occur?
- Business may want to move into a new market
- Quicker than internal growth
- To acquire a brand name
