3.2.2 - Mergers and Takeovers

Question 1

Define Merger and Takeover

Answer 1

Merger - when 2 Businesses mutually Agree to Join Forces

Takeovers - when 1 Business is Taken Over by Another By Buying the Majority Share

Question 2

What are the 2 Tactical Reasons for Mergers & Takeovers

Answer 2

• Increased Market Share
• Access to Technology, Staff or Intellectual Property

Question 3

What are the 3 Strategic Reasons for Mergers & Takeovers

Answer 3

• Access to New Markets
• Improved Distribution Networks
• Improved Brand Awareness

Question 4

Explain a Merger

Answer 4

• when 2 or More Business Join Together and Operate as One
• Usually Conducted with the Agreement of Both Businesses
• generally Friendly in Nature

Question 5

Explain a Takeover

Answer 5

• occurs when One Business Buys Another
• Takeovers among Public Limited Companies Occur because Shares are Traded Openly and Anyone can Buy Them –> Stock Market or Bought Directly from Exisiting Shareholders
• When Takeover is Complete, Company that’s Been Bought Looses its Identity and Becomes Part of the Predator Company
• Private Limited Companies however Can’t be Taken Over, Unless the Majority SHareholders ‘invite’ others to Buy their Shares

Question 6

Define Horizontal Integration

Answer 6

the Joining of Businesses that are In the Same Sector (primary, secondary, tertiary)
e.g. Just Eat and HungryHouse

Question 7

Define Vertical Integration

Answer 7

when 1 Business in One Sector Takes Over or Mergers with a Business in Another Sector or Part of the Supply Chain

Question 8

What’s the Difference between Forward Vertical Integration and Backward Vertical Integration

Answer 8

Forward Vertical Integration - where a Business Joins with Another that’s In the Next Stage of Production

Backward Vertical Integration - where a Business Joins Another in the Previous Stage of Production

Question 9

What are 2 Financial Risks of Mergers and Takeovers?

Answer 9

• Integration Costs - if More than One Business is Attracted By the Buyer -> Price of Takeover Rises
• Reduandicies of Duplicate of Staff - from 2 Businesses

Question 10

What are 2 Financial Rewards of Mergers and Takeovers?

Answer 10

• Speedy Growth - Businesses can Grow Far Quicker -> means Benefits of Growth such as Larger Market Share, Lower Costs resulting from EOS, more Market Power and Higher Profitability can be Enjoyed more Immediately
• Increased Profitability - Future Revenues will be Higher as Market Share will be Higher , also Costs will be Lower if EOS can be Exploited -> Long Term Profits should Rise

Question 11

Explain Problem of Rapid Growth - Loss of Control

Answer 11

• if Growth is Too Rapid, company might get Too Big Too Fast -> can Result in a Loss of Control by Senior Executives. Bigger Organisation means Extra Layers of Management -> may Lengthen Communication Channels and Impact Negatively on Chain of Command -> Costs may Rise as DEOS set in

Question 11

Explain Problem of Rapid Growth - Shortage of Resources

Answer 11

• a Rapidly Growing Business will be Thirsty for Resources -> this Demand for Resource therefore Drive Up Prises May Happen When there’s a Shortage of Skilled Labour and Wages are Driven Up

Question 12

Explain Problem of Rapid Growth - Management Pressure

Answer 12

• Management Under Pressure - Operating Reactively Rather than Proactively
• Quality of Products and Services Drop -> Increase in Customer Complaints -> may Lose Customers to Competitors
• Staff Turnover may Increase Due to Heavy Workloads -> Vital Knowledge Could be Lost as Staff Leave

Question 13

State 2 Probelms with Mergers and Takeovers

Answer 13

• Clash of Cultures
• Possible Communication Problems