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mergers and acuisition
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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