Mergers and Takeovers

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8 Terms

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Mergers

occurs when 2 or more businesses join to form a new one.

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Takeovers

occurs when one company purchases another.

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Horizontal mergers & takeovers

on the same sector of production

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Vertical backwards

secondary sector business buys the primary sector business.

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Vertical forwards

secondary sector business buys the tertiary sector business.

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Why businesses merge and takeover

  • economies of scale - allows reduction in costs and increased efficiency.

  • Synergies - the benefits that result from the combination of 2 businesses e.g. increased revenue, improved products.

  • Elimination of competitors - takeovers often used to remove competition and increase market share.

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Financial risks of mergers/takeovers

  • Cultural differences - mergers can result in cultural clashes leading to decreased productivity

  • Integration challenges - can be complex and costly.

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Financial rewards of mergers/takeover

  • Increased market share

  • diversification

  • Access to new markets

  • Increased value