3.2.2 mergers and takeovers

merger

• A merger is a legal deal combining two businesses under one board of directors

• Usually involves firms of similar size

• The name may change (but not always)

• Examples:

• Orange + T-Mobile → EE

• Lloyds + TSB → Lloyds TSB

take-over

• A take-over (or acquisition) is when a larger business legally purchases a smaller one

• If the deal is unwanted by the target’s management, it’s called a hostile take-over

• Example: Michael Kors acquired Jimmy Choo

reasons for merger and takeoveri ntroduction

⚙ Tactical Motives

• Increase market share

• Access technology, staff, or IP

🌍 Strategic Motives

• Enter new markets

• Improve distribution networks

• Boost brand awareness

➡ These motives help businesses grow, compete, and achieve long-term profitabilit

access to new markets 

• Adidas acquired Reebok for $3.8 billion (2005) to compete with Nike

• Gained new markets in Asia

• Became #2 sportswear brand in USA after Nike

• Strategic mergers = market expansion + competitive positioning

• Reebok was sold in 2021 for $2.5 billion

strategic improved distribution networks

• some countries may look to increase earningas overseas to offset slowing slays at home

improving brand awarnesss

• companies may merge together to create a stroner brang eg , L’Oreal bought the body shop brand

friendly takeover

• a ‘white knight’ takeover is where a business scquires a target compant close to being taken over by a blackknight

• white knights offer better terms and pledge to keep core operations running

hostile takeovers

• a black knight occurs when a compant attempts to rtakeover another business agaisnt the wishes of the managment

• eg buying their shares

horizontal integration

business operating in the same sectors , *tertiary) merge or takweover another busainess in the same sector

Verticle integration

• is when one business in one sector takes over or mergers with a busainess in another secore or apart of a supply chain

• eg amazon taking over whole foods

financial risks of mergers and takeovers

• original purchase cost

• cost of changei nto a new business

• redundancies of dupplicate staff

• cost if it all goes wrong

financial rewards of merges and takeover

increased revenue

economies of scale

problems with rapid growth - short twerm

• the business that have merged may outgrow their premises - therefore there is not enough space

• morale may drop as staff cant cope with extra work

• shortafe of cash

• pressure on staff

problems of rapid growth - managment pressure

• operating reactingly rather than proactively

• the quality of the products and services could drop

• the business may even lose customers to their competitors

• staff turnover may increase due to heavy workloads

problems with mergers and acquisitions

• clash of cultures

• possible communication problems

• diseconomies of scale

• 75% of mergers fail