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Mergers and Takeovers
BTEC Business
MergersWhen 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’
MergersMerger 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
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
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
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
Economies of ScaleThere 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