3.2.2 Mergers + takeovers Flashcards
(21 cards)
define merger
occurs when 2 or more companies combine to form a new company
-originals cease to exist - assets + liabilities r transferred to newF
Define takeover
-occurs when one company purchases another against will
-acquiring company buys a controlling stake in target company’s shares (over 50%) + gains control over operations
what r some reasons for m’s/t’s?
-strategic fit (expand into new markets may acquire)
-economies of scale (allowing companies to reduce costs + increase efficiency)
-synergies (benefits that result from merger like increased rev + costs)
-elimination of comp (increase MS)
shareholder value
what are economies of scale?
cost advantages for companies when company becomes more efficient
types of integration
vertical, horizontal and conglomerate
what is vertical integration
when a bui merges/takes over another business within supply chain/production process
give an example of vert integ
supplier m/t’s with retailer
define forward vertical integration
involves merger/takeover with a firm further forward in supply chain (dairy farmer with ice cream manufacturer)
define backwards vertical integration
mergers/takeovers further backwards in supply chain (ice cream retailer with ice cream manufacturer
Define horizontal integration
When 2 businesses m/t at the same stage of the production process (retailer with retailer)
Ice cream supplier buys another ice cream supplier
Define conglomerate integration
When 2 unrelated businesses merge/takeover
-to expand/diversify markets
-to spread risk due to more products/markets
Examples of conglomerate
Amazon buying whole foods
Tesla buying twitter
Bid pens buying razors
Forward Vertical advantages
-employees have job security as they will have a constant supply
-reduce prices
Forward vertical integration disadvantages
-consumers may resent brand if prices increase
Backwards vertical integration advantages
-closer links to supplier - quickly obtain supply
Backwards vert integ disadvantages
-complacent -no contact - always going to supply so quality may drop as doesn’t need to maintain relation (e.g late delivery)
Horizontal integration advantages
-gain of knowledge/expertise
-reduces comp
Horizontal integration disadvantages
-culture clash (different ways of doing things so difficult to adapt) = conflict
-costs increase = unesacary duplication of roles so increases diseconomies of scale
Conglomerate integ advantages/disads
Risk bearing economies of scale
Lack of knowledge of unrelated markets (likely to fail)
rapid growth issues
-loss of control
-strained communication
-culture clash
-difficulty managing business
-decreased job security for employees
reasons why businesses may stay small
-to build relations with employees
-easier to manage/make decisions
-easier to keep costs low
-high quality customer service
