Corporate Mergers and Acquisitions

Question 1

• Difference between merger and acquisition:

Answer 1

o A merger occurs when two separate entities combine forces to create a new, joint organization. Meanwhile, an acquisition refers to the takeover of one entity by another.

Question 2

Merger

Answer 2

• a merger requires two companies to consolidate into a new entity with a new ownership and management structure
  b. mergers are done to reduce operational costs, expand into new markets, boost revenue and profits.
  c. Mergers are usually voluntary and involve companies that are roughly the same size and scope.
  d. Mergers also take place when companies want to acquire assets that would take time to develop internally

Question 3

Different types of Merger

Answer 3

conglomerate, horizontal, vertical, cogeneric, market extension

Question 4

Conglomerate Merger

Answer 4

This is a merger between two or more companies engaged in unrelated business activities. The firms may operate in different industries or in different geographical regions.

Question 5

Cogeneric Merger

Answer 5

AKA product extension merger. combining of two or more companies that operate in the same market or sector with overlapping factors, such as technology, marketing, production processes, and research and development (R&D). achieved when a new product line from one company is added to an existing product line of the other company

Question 6

Market Extension Merger

Answer 6

occurs between companies that sell the same products but compete in different markets. Companies that engage in a market extension merger seek to gain access to a bigger market and, thus, a bigger client base

Question 7

Horizontal Merger

Answer 7

occurs between companies operating in the same industry. The merger is typically part of consolidation between two or more competitors offering the same products or services.

Question 8

Vertical Merger

Answer 8

occurs when two companies operating at different levels within the same industry’s supply chain combine their operations.

Question 9

Benefits of Mergers:

Answer 9

i. Gain access to larger market and customer base, reduce competition, achieve economies of scale, reduce cost of operations, avoids duplication, expand to new geographic areas, prevents closure of unprofitable business

Question 10

Example of a merger

Answer 10

i. Kraft and Heinz merger

ii. Example of horizontal merger because ti integrated similar product lines in the same industry

Question 11

What is an acquisition

Answer 11

a. In an acquisition, a new company does not emerge. Instead, the smaller company is often consumed and ceases to exist with its assets becoming part of the larger company.
b. Acquisitions, sometimes called takeovers, generally carry a more negative connotation than mergers.
c. An acquisition takes place when one company takes over all of the operational management decisions of another company.

Question 12

Benefits of an acquisition:

Answer 12

i. Increase market power, overcome barriers to entry (acquisition brings on established brand loyalty, economies of scale, and distribution networks), cost reduction, synergy of core competencies, diversification

Question 13

Example of corporate acquisition:

Answer 13

i. Marriott Acquires Starwood
1. Increase in market power, enter new geographical markets, share technology, increased talent pool, cost reduction due to controlling the supply chain, increased purchasing power with suppliers, increased leverage over distributors (like OTAs), acquired meaningful brand loyalty program, increase in branded hotel offerings, lower costs due to streamlining Marketing, Sales, and distribution fees