Mergers

http://www.bized.co.uk

Copyright 2007 – Biz/ed

Mergers and Takeovers

BTEC Business

http://www.bized.co.uk

Copyright 2007 – Biz/ed

Mergers

When two companies join to form one new firm, it can be:

• voluntary, also known as a ‘merger’

or• forced, when it is known

as a ‘takeover’

http://www.bized.co.uk

Copyright 2007 – Biz/ed

Mergers

Merger activity is an example of ‘integration’ taking place within industries. This can be:

• vertical integration, where firms at different stages in the production chain merge

and• horizontal integration, where competing

firms in the same industry merge

http://www.bized.co.uk

Copyright 2007 – Biz/ed

Why Integrate?Firms are sometimes keen to merge

when:• they can make savings

from being bigger• this is known as gaining ‘economies

of scale’• they can compete with larger firms

or eliminate competition• they can spread production over

a larger range of products or services

http://www.bized.co.uk

Copyright 2007 – Biz/ed

Economies of ScaleThere are several types of economy

of scale:• technical economies, when producing

the good by using expensive machinery intensively

• managerial economies, by employing specialist managers

• financial economies, by borrowing at lower rates of interest

http://www.bized.co.uk

Copyright 2007 – Biz/ed

Economies of Scale

• commercial economies, by buying materials in bulk

• marketing economies, spreading the cost of advertising and promotion

• research and development economies, from developing better products

http://www.bized.co.uk

Copyright 2007 – Biz/ed

Economies of Scale

There are sometimes problems that can affect integrated firms. These are known as ‘diseconomies of scale’

• firms are too big to operate effectively

• decisions take too long to make• poor communication occurs