Demergers And Issues With Growth

Question 1

Constraints on B. growth (4+)

Answer 1

The size of the market
Access to finance by banks and investors
Owner objectives – not every owner wants to grow
Regulation – the government stops certain mergers if they believe that it would be damaging for the market

Question 2

Demergers what

Answer 2

When a firm splits itself into two or more separate parts to create two or more firms

Question 3

What causes a de merger (3)

Answer 3

Lack of synergies between the two firms
Price
Focussed companies

Question 4

Lack of synergies what

Answer 4

One part of the firm is not having an impact on the more efficient and profitable running of the other part of the firm

Question 5

Focussed companies what (2)

Answer 5

In the 1970s many firms created conglomerates to diversify and reduce risk
Nowadays companies focus on just one or two key markets as management will make more profits and growth

Question 6

Cause of demerger - price what

Answer 6

The price of demerged firms may be higher than the price of the single larger firm

Question 7

Impact of demerger for firms

Answer 7

Benefit = if the increased specialisation that results leads to greater efficiency
If firms can cut costs or develop new innovative products then their profit should rise

Question 8

Impact of demerger consumers (2)

Answer 8

Benefit if the demerged firm becomes more efficient, cuts costs and lowers prices
Lose out if the demerged firms just focus on making profit through raising prices and reducing their product range

Question 9

Impact of demerger on workers (2)

Answer 9

Senior managers may gain a promotion
Some workers may lose their jobs if the merger makes the firm more efficient

Question 10

Reasons for monarch airlines failure (2)

Answer 10

Terror attacks in Egypt + turkey = increased comp.
Fuel price increases = pound fell 10% so increase in price