3.2.2 mergers and takeovers Flashcards
define mergers
where two firms of a similar size agree to join forces permanently, creating a new company twice the size of each predecessor
define takeover
when one firm buys a majority of the shares in another and therefore achieves full management control
key reasons for a merger or takeover
growth
cost synergies
diversification
market power
advantages of merging
synergy
economies of scale
increased revenue and market share
cross-selling
diversification
acquiring unique capabilities and resources
international expansion
advantages of merging for international businesses
access to technology, skills, patents, brand names
access to new trading blocs
access to western markets
easy way to expand scope and size of market share
can increase profitability and sales
rapid inorganic growth into expanding markets
define friendly takeover
a business may be struggling with cash flow problems
they invite a takeover from a stronger business
they come to rescue the struggling business
define hostile takeover
board of directors will try and resist the takeover
if another business gets 51% shares they can takeover management and control
horizontal integration
when one firm buys out another in the same industry in the same stage of the supply chain
like buying a competitor
vertical integration
when one firm takes over or merges with another at a different stage of production process, but in the same industry
backward vertical integration
when a firm buys out a supplier
forward vertical integration
buying out a customer
advantages of backward vertical integration
closer links will suppliers aid new product development and give more control over quality and timing of supplies
better co-ordination between company and supplier = lead to innovative new product ideas
having a secure customer for the suppliers may increase job security
disadvantages of backward vertical integration
after buying a supplier, staff may become complacent if they know you will order from them
costs may rise = delivery and quality may drop
firm’s control over the supplier may reduce the variety of goods available
becoming part of a large firm can affect the sense of staff morale built up at the supplier
advantages of forward vertical integration
control competition in own retail outlets
firm put in direct contact with end users / consumers
prices may fall if a large retail margin is absorbed by the supplier
increased control over the market may increase job security
disadvantages of forward vertical integration
consumers may resent the dominance of one firms products in retailer outlet causing sales to decline
increased power within the market could lead to price increases
staff in retail outlets may find themselves deskilled
