Mergers & Takeovers

Question 1

Key Drivers for Mergers & Takeovers

7

Answer 1

• Rapid Technological Change
• Need for economies of scale to remain cost and price competitive in global markets
• Need to be able to supply customers globally
• Low demand growth in mature economies - must have a presence in faster-growing countries *(Taiwan, India, China, South Korea [TICS] )
• Access to more distribution networks
• Investment in markets with fast-growing per-capita incomes
• By-pass non-tariff barriers such as import quotas

Question 2

Why do many mergers fail?

4

Answer 2

• Huge financial costs, often rely on loans which leave large overhanging debt
• Share prices can fall
• Many mergers fail to enhance shareholder value
  because of clashes of corporate cultures, priorities and key personalities
• Loss of human capital (skilled workers)

Question 3

Joint Ventures

Answer 3

When businesses join together (legally remain seperate) to pursue a common project

e.g. A joint research task to share the fixed costs

Example - Vodafone & Telefonica agreed to share their mobile network