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mergers and acuisition

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  1. 1. Mergers and Takeovers BTEC Business
  2. 2. Mergers <ul><li>When two companies join to form one new firm, it can be: </li></ul><ul><li>voluntary, also known as a ‘merger’ </li></ul><ul><li>or </li></ul><ul><li>forced, when it is known as a ‘takeover’ </li></ul>
  3. 3. Mergers <ul><li>Merger activity is an example of ‘integration’ taking place within industries. This can be: </li></ul><ul><li>vertical integration, where firms at different stages in the production chain merge </li></ul><ul><li>and </li></ul><ul><li>horizontal integration, where competing firms in the same industry merge </li></ul>
  4. 4. Why Integrate? <ul><li>Firms are sometimes keen to merge when: </li></ul><ul><li>they can make savings from being bigger </li></ul><ul><li>this is known as gaining ‘economies of scale’ </li></ul><ul><li>they can compete with larger firms or eliminate competition </li></ul><ul><li>they can spread production over a larger range of products or services </li></ul>
  5. 5. Economies of Scale <ul><li>There are several types of economy of scale: </li></ul><ul><li>technical economies, when producing the good by using expensive machinery intensively </li></ul><ul><li>managerial economies, by employing specialist managers </li></ul><ul><li>financial economies, by borrowing at lower rates of interest </li></ul>
  6. 6. Economies of Scale <ul><li>commercial economies, by buying materials in bulk </li></ul><ul><li>marketing economies, spreading the cost of advertising and promotion </li></ul><ul><li>research and development economies, from developing better products </li></ul>
  7. 7. Economies of Scale <ul><li>There are sometimes problems that can affect integrated firms. These are known as ‘diseconomies of scale’ </li></ul><ul><li>firms are too big to operate effectively </li></ul><ul><li>decisions take too long to make </li></ul><ul><li>poor communication occurs </li></ul>