T8 Mergers

Question 1

Types of Mergers

Answer 1

Horizontal - same line of business
Vertical - different stages of production
Conglomerate - unrelated lines of business

Question 2

Reasons for Merger

Answer 2

Economies of Scale
Economies of Vertical Integration
Complementary resources
Change in corporate control
Industry consolidation

Question 3

Economies of Scale

Answer 3

Firm can reduce per unit cost by spreading fixed costs across larger volume of production

Question 4

Economies of Vertical Integration

Answer 4

When 2 parts of an operation are highly dependent on each other it may make sense to combine them i.e supplier with consumer. Allows for coordination and more control over volume, quantity and price

Question 5

Complementary resources

Answer 5

Merging may result in each firm filling in the missing pieces of its firm with pieces from the other.

Question 6

Change in corporate control

Answer 6

Replace old management with new (agency issues)

Question 7

Industry Consolidation

Answer 7

Biggest opportunities to improve efficiency are in industries with too many firms. Mergers force other companies to cut employment

Question 8

Question 9

Answer 9

Question 10

Answer 10

Question 11

Question 12