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Using the data in Extract D, evaluate the two takeovers and recommend which one is most likely to have affected the profits of Ferrero International - Edexcel - A-Level Business - Question 1 - 2018 - Paper 3
Question 1
Using the data in Extract D, evaluate the two takeovers and recommend which one is most likely to have affected the profits of Ferrero International. In 2014, Ferre... show full transcript
Worked Solution & Example Answer:Using the data in Extract D, evaluate the two takeovers and recommend which one is most likely to have affected the profits of Ferrero International - Edexcel - A-Level Business - Question 1 - 2018 - Paper 3
Step 1
Evaluate the two takeovers: Thorntons
Answer
Thorntons was sold for £112m, which should be affordable for Ferrero International given its revenue over £8bn (1.4% of 2015’s turnover). This takeover primarily offers Ferrero International increased expertise, assets, and resources to enable an increase in production in the UK without necessitating the establishment of new plants or hiring new staff.
Furthermore, acquiring Thorntons may strategically provide access to more sales for Ferrero in high street stores, which is an important market segment for chocolate products. The acquisition could also enhance brand presence and customer loyalty, posing a defensible long-term strategy against competitors like Nestlé and Mars.
Step 2
Evaluate the two takeovers: Oltan Group
Answer
The Oltan Group acquisition is significant due to its production scale and the strategic move towards backward vertical integration. By acquiring Oltan, Ferrero International gains direct access to a vital ingredient for its products, namely hazelnuts, which are commonly used in Nutella and Ferrero Rocher. This can help reduce production costs due to lower intermediaries and potentially higher profit margins.
Additionally, owning Oltan may provide Ferrero with insights into the hazelnut production process, reducing reliance on external suppliers. The Oltan Group's existing export facilities to the EU and beyond also offers Ferrero International enhanced distribution capabilities.
Step 3
Recommendation on which takeover is most likely to affect profits
Answer
Based on the evaluations, the acquisition of the Oltan Group is likely to have a more profound impact on Ferrero International's profits compared to the purchase of Thorntons. The Oltan Group directly addresses a core ingredient cost and provides a strong foundation for production efficiency and profitability due to the backward vertical integration. In contrast, while Thorntons enhances market presence, it does not provide the same level of cost management for critical ingredients.