9.1b - Mergers and Takeovers Flashcards
Merger definition
When two businesses join together
What happens to shareholder shares in a merger?
They are 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 happens to shareholder shares in a takeover?
Shareholders will be offered a cash price per share they own or will convert their shares into shares in the buying company, at a low rate
Controlling interest definition
When a business has more than 50% of total shares
What are the different forms that 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
Horizontal integration definition
The joining of two firms in an industry who are at the same stage of the production process
Conglomerate integration definition
The joining of two firms who operate in different markets
Why do mergers and takeovers occur?
- Business wants to move into a new market
- It is quicker than internal growth
- To acquire a brand name
- To gain possession of patents
- To take part in asset stripping
Advantages of takeovers:
- Economies of scale
- Lower unit costs
- Higher profits
- Increased market share
- Synergies
Why do mergers and takeovers fail?
- Different cultures do not fit in well together
- Ignorance
- Different objectives
- Weak leadership
