• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Why do firms engage in mergers and acquisitions? Describe a recently completed merger between two firms identifying the specific reasons given for the merger.

Extracts from this document...

Introduction

Why do firms engage in mergers and acquisitions? Describe a recently completed merger between two firms identifying the specific reasons given for the merger. Firms merge with or takeover another company for different reasons: Growth; The fastest way for growth to occur is to be involved in a merger and because of this it is the main basic factor for merging, diversification; entering different markets in order to cut the dependency on current product range (conglomerate integration), market power; when two rival companies merge the new company has an increase in market power and reduces the competitiveness of the market. A firm may also merge with the intent to asset strip but this is a short-term attempt to increase cash flow and is more likely to involve a horizontal integration type of merger. There are four main types of business integration, horizontal, vertical backward and forward and conglomerate integration. Vertical integration occurs when one firm takes over or merges with another in a different stage in the production process where-as a horizontal integration occurs when one company merges with another at the same stage of production in the same industry, out of the four types of integration this is the most common with such examples like EasyJet taking over Go and Coca-Cola taking over Orangina. Synergy is a commonly used word to explain why mergers and takeover occur; it means that combining the businesses will produce one enterprise that is more powerful and efficient. ...read more.

Middle

By 1996 WH smiths pulled leaving boots to record a loss of 6.7 million for the year, with Boots now in full control they turned things around in the Following year and a profit of 2.5million was made; however in comparison B&Q made 167 million profits that year. Boots decided to pull out and write of the 400 million it spent trying to make it a success, learning from the DIY disaster Boots agreed to stick closer to home in areas it has strong reputation and expertise.(1) Merger of Boots and Alliance UniChem Boots' efforts to broaden its retail offering over the last ten years - offering dentistry, chiropody and laser eye surgery - have proved largely unsuccessful. The merger between these two companies will create one of Europe's largest drugs, beauty and healthcare groups with sales of more than �13bn. Although Boots offers a variety of services and is an established household name in the UK, Boots has been struggling in the face of stiff competition from supermarket giants Tesco and Asda. Boots has seen its sales fall in recent years as supermarkets have aggressively targeted the toiletries and over-the-counter medicines markets. The merger with Alliance UniChem would enable the new company to regain market share in these areas and with the expanse of Alliance UniChem into European markets where Boots have failed to impact, a potential whole new market can be captured. Unichem said it had paid close to �18m ($31.2m) ...read more.

Conclusion

For the companies' share prices it has been good. Boots jumped more than 7% in early trading, while Alliance UniChem climbed 5%. This gives shareholders an increased confidence for the merger as the quantitative data suggests success; however, the feel-good factor surrounding Boots may be down to expectations of a bidding war for the retailer, rather than optimism that the merger will revolutionise its business.(4) This merger of these two companies suggests benefits for both the consumer and the shareholders, as decreased cost (suggested 100 million) will give the shareholders better dividends, and should also results in lower prices for the customer, this could be a direct result of lower costs gained by economies of scale from becoming a larger company, or lowering the general market costs because of the increased competition. There are people who see the merger as not a good idea and resources could be better spent, Critics complain that the company has run out of ideas and the merger is a last ditch attempt to revive the business by an increasingly desperate management. Instead of taking on more shops, Boots should be looking at ways of getting the most from their existing floor space, cutting costs and polishing up their brand name, they say.Critics also complain that a merger very rarely delivers on all of its promises, and destroys shareholder value rather than enhancing it. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Peer reviewed

    The impact of economies and diseconomies of scale Tesco face

    4 star(s)

    This will increase efficiency, reduce the average costs of producing goods and selling the goods produced. The final internal economy of scale Tesco benefit from is advertising. As they have so many stores, they can spread their advertising costs over all their stores and the advert applies to each of its stores.

  2. Why do firms seek to grow larger and are large firms in the public ...

    Also if the company is not a monopoly but is still large then the public can expect cheaper prices than they would get from a small firm.

  1. A Merger analysis of Carrefour and Tesco.

    they have a diverse product range, which includes television and media products, garden products and athletic equipment. This diversity has given Carrefour a competitive edge and now it is the most popular store in France.

  2. Case Study: The Home Depot

    This is important for Home Depot (the home improvement industry in general actually) because it is likely that these people will not so quick purchase another (new) house. Instead of that they will probably renovate their existing homes. There are a lot of houses from before 1980.

  1. Bellway Plc is a holding company with subsidiaries; its main subsidiary company is Bellway ...

    Return on Capital Employed Profit before Tax & Interest/Capital Employed Bellway (213,255 / 850051) *100 =25.09% (175,204 / 687108) * 100 = 25.50% (133,055 / 575377) *100 = 23.12% (107,381/ 454931) *100 = 23.60% (95,607 / 390930) *100 =24.46% 6.04 33.7 102.04 Wilson Bowden (279.1/1123)

  2. An Analysis of the Proposed Merger Between Lloyds TSB Group Plc and Abbey National ...

    There are a number of features of the PCA market, which make it particularly vulnerable to tacit collusion in pricing. These are; product homogeneity, many small customers lacking buyer power, transparent prices, stable demand and similarity of size and cost structure among suppliers.

  1. This report will establish the opportunities and threats presented to Sony by the EU ...

    Also as LG operate in Sony's market it enables Sony to save costs on producing plants around other European countries where they have not got a plant. All Sony would have to change is the way LG produce and manufacture the goods and since it has Sony's name associated with

  2. Kingfisher is the largest home improvement retailer in Europe and the third largest in ...

    Kingfisher correctly predicted the massive increase in consumer demand for home improvement products by understanding the socio economic forces within the industry. The expansion of the UK economy and the increase in consumer expenditure on home improvement products fuelled Kingfisher to pursue a high growth strategy (figure 11).

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work