3.2.2 Mergers & Takeovers

Merger

🔗 Where two or more companies of the same size decide to go forward in business by merging as one.

Takeover

🔗 The purchase and acquisition of control of one company by another.

Reasons why businesses merge with other businesses

• Eliminates the competition
• Strengthens brand
• Fast growth and expansion via diversification
• To gain expertise and resources (E.G Capital machinery)

Reasons why businesses take over other businesses

• Benefit from economies of scale
• Spreads risks by diversifying
• Acquisition of expertise in a given field
• Eliminate competition -> Increase market share

Why businesses allow others to take them over

• New opportunities
• Financial struggles, poor profits
• Low growth
• Negative industry changes

Examples of real mergers

• Disney and Pixar
• Facebook and WhatsApp
• Daimler and Chrysler (gone wrong)

Examples of real takeovers

• BT buying EE
• Tata buying JLR from Ford
• Apple buying Shazam

Methods of business growth

• Horizontal integration 🔗 Merging/taking over a fellow business (E.G Asda and Sainsbury's in talks of merger).

• Backwards vertical integration 🔗 Joining with a business in the previous part of the supply chain (E.G Sainsbury's buying a farm).

• Forward vertical integration 🔗 Joining with a business in the next part of the supply chain (E.G Bike manufacturer merging with a retailer)

• Lateral integration 🔗 Two firms joining together that sell related products in similar markets (E.G BT buying EE).

• Conglomerate integration 🔗 A business who are in diverse markets (E.G Virgin train, Virgin Media, Virgin Active).

Synergy

🔗 The interaction or cooperation of two or more organizations to produce a combined effect greater than the sum of their separate effects.

Retrenchment

🔗 When an organisation aims to reduce some of its business operations with the view to cut expenses. E.G Product/market withdrawals.