Mergers and takeovers Flashcards
Define a merger.
A merger is a legal deal to bring two businesses together under one board of directors
The businesses are usually the same size and the name is normally changed (although not always)
Define a takeover.
Take-over is also known as an acquisition
This is a legal deal where one larger business purchases a smaller one
If the deal is unwanted by the management or board of directors then this is a “hostile take-over”
e.g. Michael Kors takes over Jimmy Choo
What are the strategic reasons for mergers and takeovers?
Access to new markets
Improved distribution networks
Improved brand awareness
What are the tactical reasons for mergers and takeovers?
Attempt to ensure increased market share
Access to technology, staff or intellectual property
What is a friendly takeover?
A business may be struggling with cash flow problems and invite a takeover from a stronger business – known as a “white knight” as they come in to rescue the struggling business
What is a hostile takeover?
The board of directors will try and resist the takeover, but if another business gets 51% shares they can takeover management and control
What is horizontal integration?
Businesses operating in the same sector (e.g. tertiary) merge or takeover another business in the same sector
What is vertical integration?
Vertical integration is when one business in one sector takes over or mergers with a business in another sector or part of the supply chain
vertical integration can also be a different part of the supply chain
What are the financial risks of mergers and takeovers?
Original purchase cost
Cost of change into a new business
Redundancies of duplicate staff e.g. two marketing managers, two finance managers etc.
Cost if it all goes wrong:
What are the financial rewards of mergers and takeovers?
Increased revenue
Economies of scale
Explain the short term problems of rapid growth.
The businesses that have merged may outgrow their premises in the short-term. There may not be enough space for everyone to work efficiently.
Morale may drop if staff cannot cope with the extra work so productivity can decrease.
There may be a shortage of cash to meet expansion costs.
Taking on more and more work to generate more income places additional pressure on the premises and staff.
CMA investigating Vision Express and Tesco opticians
Explain management pressure as a problem of rapid growth.
Management may be under pressure, operating reactively rather than proactively.
The quality of the products and services could drop, causing an increase in customer complaints.
The business may even lose customers to their competitors.
Staff turnover may increase due to heavy workloads. Vital knowledge could be lost as staff leave. Hiring and training new staff takes time and money.
What are the problems with mergers and acquisitions?
Clash of cultures
Possible communication problems
Possible move away from core competencies of original business may cause issues of control
Unreliable merger partners
Diseconomies of scale
Lack of understanding of local markets leading to wrong promotional message
75% of all mergers fail
