Mergers and Acquisitions

A2 Business Studies

Mr Young

Aims and ObjectivesAim:

To understand the nature of company growth.

Objectives:

All Will: Define internal and external growth.All Will: Explain the benefits of growth and why firms grow.Most Will: Analyse the benefits and disadvantages of external

growth.Some Will: Evaluate the effect of growth on firms and

industries.

Starter

0Name 5 recent mergers and acquisitions

Merger or Acquisition?

0 In your groups decide on the difference between a merger and an acquisition.

Internal and External Growth

0 Internal Growth: expansion of a business by means of opening new branches, shops or factories. (Also known as Organic Growth).

0 External Growth: business expansion achieved by means of merging with or taking over another business from either the same or different industry.

0 Merger: an agreement by shareholders and managers of two businesses to bring both firms together under a common board of directors

0 Acquisition: when a company buys over 50% of the shares of another company and becomes the controlling owner of it.

External Forms of Growth

Same Industry – towards supplier

Backwards vertical integration. Eg. Sky takes over TV production company

Conglomerate Integration

Same Industry – same stage of production

Horizontal Integration E.g. BA and Iberia

Forwards Vertical IntegrationEg. BP buys petrol stations

Same industry towards the customer

Different Industries

Which form of integration?

0Horizontal Integration

Which form of integration?

0Backwards Vertical Integration

Which form of integration?

0Conglomerate Integration

Which form of integration?

0Horizontal Integration

Which form of integration?

0Conglomerate Integration

0 When two firms merge or integrate it is hoped it will be more:

1. Effective2. Efficient3. Profitable

Due to:

4. Two businesses can share research/ideas.5. Economies of scale.6. Cost saving.

Synergy Benefits:

The whole is greater than the sum of parts

External Forms of Growth Benefits

Why Grow Internally or Externally?

1) Increase profit/sales.

2) Increase market share = greater bargaining power.

3) Increase economies of scale.

4) Increase the power and status of owners. E.g. influence government policy making.

5) Reduce the risk of being a takeover target.

Business Presentations

External Growth Merger Investigation

http://news.bbc.co.uk/1/hi/business/8610124.stmhttp://www.bbc.co.uk/news/business-11866666

Should the merger of British Airways and Iberia Airlines

go ahead or not?

i) You are a team of business analysts, and have been asked to

investigate the case of ‘British Airways’ wanting to merge with

‘Iberia Airlines’ to form ‘International Airlines’. You are

provided with various pieces of information, which you must

break down and analyse as a group. Fill in your analysis in the

box after each piece of evidence.

Should the merger of British Airways and Iberia Airlines

go ahead or not?Create a business presentation in which you evaluate each piece of evidence. You may wish to include things such as:

0 Identify the firms involved.0 Identify the type of growth.0 Identify the reasons for this merger and the impact on the airline

industry.0 Draw their position on the growth chart. (guidance 1)0 The advantages to the firms of this merger. (guidance 3)0 The disadvantages to the firms of this merger. (guidance 3)0 An evaluation of whether the merger should go ahead or not.

Plenary: Business Presentations