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  2.  
  3. PEARSON (PEARSON)
  4.  
  5. Business
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  7. Unit 3 - Business decisions and strategy

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Summary Mergers and Takeovers
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Describes reasons for mergers and takeovers, what they are, the advantages and disadvantages of vertical and horizontal integration, financial risks and rewards of integration, hostile and friendly integration, and problems of rapid growth.

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  • September 28, 2020
  • 2
  • 2019/2020
  • Summary

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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

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