METHODS OF GROWTH - MERGERS AND TAKEOVERS

Question 1

What is a merger

Answer 1

Merger: When two or more businesses agree to become integrated to form one business under joint ownership.

Question 2

Examples of mergers being used in the real worls

Answer 2

For example: Orange and team mobile came together to form the company EE. Also Dixsons and Carphone Warehouse came together to form the company Dixons Carphone

Question 3

What is a takeover

Answer 3

Takeover: When one business gains control over another and becomes the owner, it can be achieved by buying 51% of the shares (this could be hostile - hostile takeover). Disney now owns 51% of 21st century fox.

Question 4

What are the advantages of mergers and takeover

Answer 4

Increase market share quickly (EE has a bigger market share, than the 2 companies that created it by themselves)

Gain economies of scale

Gain competencies and skills

Benefit from synergies - Combining their skills to create better value
Control supply chain though vertical integration - may purchase the supplier to stop the changes of prices. Or buy the distributors

Defend itself against a takeover threat

Gain access to segments of existing markets

To eliminate competition - Purchase a competitor, so that the market is less competitive

Spread risks by diversifying

Acquire intangible assets (Brands, patents, trademarks)

Question 5

What are the disadvantages of mergers and takeovers

Answer 5

Can be very expensive

Difficult to accurately value another business (intangible assets)
Alter brand image

Problems of integration (change management) - different technologies, systems etc.

Resistance from employees (they could feel fretand)

Incompatibility of management styles, structures and culture

Synergies difficult to realise

Suffer diseconomies of scale - Harder communication etc