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Mergers And Takeovers

Mergers And Takeovers

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  • 1. Mergers and Takeovers BTEC Business
  • 2. 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’
  • 3. 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
  • 4. 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
  • 5. Economies of Scale
    • There 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
  • 6. 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
  • 7. 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