Summary Mergers and Takeovers

Theme 3 Topic 5
Mergers and Takeovers
Mergers and Takeovers
Merger

 Where two or more businesses join together and operate as one.
 A+B=C
 Conducted with the agreement of both businesses – friendly.

Takeover (acquisition)

 When one business buys another.
 A+B=A
 Often hostile.

Reasons for Mergers/Takeovers Reasons Against Mergers/Takeovers
 Cuts costs  Potentially expensive
 Cope better with capacity/weak demand  Diseconomies of Scale
 Larger market share = increased market  Lack of knowledge about other business
power  Culture clash
 Economies of Scale  CMA Regulator might not allow it
 Boosts growth = more sales = profit
 Synergy


Horizontal and Vertical Integration
Backward Vertical Integration – joining with a business in the previous
stage of production.
Forward Vertical Integration – joining with a business in the next stage of
production.
Horizontal Integration – joining with a business in the same stage of
production.



Advantages to the Company Disadvantages to the Company
 Have control over competitor’s  Management might not be
source of raw materials. trained in that stage of
Backward Vertical
 Cheaper production costs production.
Integration
 More control over the supply  Keeps you in the same market –
chain any problems in it will affect you
 Higher profit margins due to  Refurbishing stores or retailers
lower costs could be expensive
Forward Vertical  Able to supply only their stock  Keeps you in the same market –
Integration if integrate with shop. any problems in it will affect you
 Have control over the amount
sold/produced.
 Larger market share  If it’s too big, could experience
 Established business diseconomies of scale
Horizontal  Economies of Scale  Growth could be too fast
Integration  Removes rivals from the  Subject to investigation by CMA
market  Have to make some staff
 Increases capacity. redundant