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Business combination
- 3. Business Combination 1. Definition of Combination 2. Reason for Combination 3. Objective and Advantages of Combination 4. Disadvantages of Combination 5. Types of Combination
- 5. When a buyer takescontrol of another business with a transaction, it is calleda Business combination
- 6. IFRS:A business combination is a transactionin which the acquirer obtains control of another business (acquire).
- 7. The combination of olive oil,garlic and lemon juice lifts the sprits in winter. YotanOtolenghi
- 9. BENEFITSOF BUSINESSCOMBINATIONS • Elimination or reducing competition. • Advantage of large scale business. • Mutual co-operation. • Ensure economy. • Check over/under production.
- 10. DISADVANTAGES OF BUSINESS COMBINATION CREATION OF MONOPOLY BUSINESS OVER CAPITALIZATION ADMINISTRATIVE PROBLEM ANTI-SOCIAL ACTIVITIES THREAT TO SMALL BUSINESS UNHOLY INFLUENCE ON GOVERNMENT NO PERSONAL CONTACT COSTLY MANAGEMENT MISUSE OF FUNDS NATIONAL INTEREST IGNORED NON-COOPERATION
- 12. CompleteConsolidation • It occurs when two or more concerns combine to transfer their assets and liabilities to new company or when one company absorbs another’s concern by outright purchase of its business. Complete consolidation thus means end of separate identity of constituent units and their amalgamation into a single unit. Merger Amalgamation
- 13. Merger • It means formation of a new company to take over the assets and liabilities of two or more existing companies.Allthe constituents companies lose their separate identity and their members get allotment of shares in the new company.
- 14. Reasonfor merger • Economies of scale • Operating economies • Synergy • Growth • Diversification • Utilization of taxshield • Increase in value • Elimination of competition • Better financial plannning
- 15. Acquisitionand takeover • In this one company absorbs another company or companies. The absorbing company takes over the assets of the absorbed company and often assumes its liabilities. The identity of the absorbed company is lost since its assets from the property of the absorbing company. The shareholders of the absorbed company are compensated in form of cash, shares in the absorbing company, etc. takeover is a hostile activity where the acquisition is a friendly takeover.
- 16. Reasonsfor acquisition • Increased market power • Overcoming entry barriers • Cost of new products development and increased speed to market • Adequate and easy terms working capital • Access to resourceful management • Re-shaping the firm’s competitive scope • Learning and developing new capabilities
- 17. Merger is considered to be a process when two or more companies come together to expand their business operations. An acquisition occurs when one company or corporation takes control of another company and rules all its business operations. They are considered as amicable. They are considered as hostile. New stocks are issued. No new stocks are issued. The companies of same size join hands together. The larger companies acquire smaller companies. Both the companies are treated as equal. The company that is stronger gets the power. The two companies of same size combine to increase their strength and financial gains along with breaking the trade barriers. The two companies of different sizes come together to combat the challenges of downturn.
- 18. Horizontalcombinations • Horizontal or parallel combination is one in which the units combined carry on the same trade or pursue the same productive activity.
- 19. Features of horizontal combination Engaged in same type of business Dealing with same types of goods Combines together with specific objectives Works under single management
- 20. VerticalCombination • It is also known as sequence or industry or process integration. It arises as a result of integration of those business enterprises which are engaged in different stage of production of a product.
- 21. Features of vertical combination may exist in same or different industry Dealing with different types of products Combines to ensure efficient communication May be forward or of backward linkage integration
- 22. Lateralcombination • The term lateral integration was intended to describe horizontal integration between firms making different products but where there was some connection either in production techniques or the finished product itself. Hence, an entertainment corporation may wish to go into the travel and hotel industry.
- 23. Conglomeratecombination A combination is said to be conglomerate where firms dealing with related or unrelated goods, working in forward or backward Linkage combines to work together goods , working in forward or backward linkage combines to work together under same management.
- 25. TYPES OFFEDERATION • Pools: Pool is an association of producers producing similar types of goods. Pool is formed through written agreement to eliminate or lessen competition among them and thus earns more profit. • Cartels: Apool having common sales agency is known as cartel. It is thus an output and profit pool. Its main objectives are to control the supply of goods in the market , control price and thus maximize profit. It is a horizontal combination. • Trust: It is a lateral combination. To get advantages of large scale business share holders of small companies voluntarily from an association called “Trust” where shares in full or in part of the concerned companies are surrounded. • Holding company: A popular & common device for combining a number of firms is the holding company form of organization. • Syndicate: It is an association of persons or business firms for a particular business purpose. In most cases syndicates engage in financial transactions