3.2.2 Mergers And Takeovers

Question 1

What is a merger?

Answer 1

Two or more firms under one board of directors.

Question 2

What is a takeover?

Answer 2

When one firm buys majority shareholding of another firm and assumes full management.

Question 3

What is integration?

Answer 3

The joining of 2 businesses as a result of either a merger or takeover.

Question 4

What is horizontal integration?

Answer 4

When two businesses join together who are within the same stage.

Question 5

What is vertical integration?

Answer 5

When two businesses join together who are a part of different stages.

Question 6

What is diversification?

Answer 6

When two unrelated businesses integrate.

Question 7

What is forward vertical?

Answer 7

The next stage

Question 8

What is backwards vertical?

Answer 8

The previous stage

Question 9

What are the reasons for external growth?

Answer 9

Secure supplier
Secure outlet
Benefit from expertise
Brand recognition
Gain foothold
Synergy

Question 10

Financial risks and rewards

Answer 10

Legal and regulatory procedures
Research
Impact on share value
Resistance from employees
Bidding wars
Operation costs
Financing integration

Question 11

What are the issues with rapid growth?

Answer 11

Overtrading
Cultural clashes
Gearing
Short termism by shareholders
Strain on resources
Workforce uncertainty
Conflicting messages
Limited due diligence