Mergers and takeovers are ways in which businesses can
grow externally and grow by joining together to form one company.
Mergers are mutual agreements between the companies
involved to join together. Most
takeovers tend to be hostile, in that the company being taken over does not
want to be bought by the larger business.
Takeovers do not need to be and are not always hostile, as some in
fact can be friendly, in that
the company being taken over wants to be taken over and can even ask to be
Why Do Companies Join Together?
is the quickest and easiest way to expand.
a smaller competitor is normally cheaper than growing internally.
survival survival of the fittest.
To continue in the market the company may need to grow and the
easiest way is to buy up someone else.
main aim of the business may be expansion.
purposes. Buying up other
businesses is a form of investment.
prepare for the European Single Market.
asset strip. Some companies buy other companies in order to sell off
the most profitable assets of the business and make a profit.
gain economies of scale.
Types of Merger/TAKEOVER
A horizontal merger/takeover is one where two businesses in exactly the
same line of business or stage of production join/merge with on another,
for example if two hairdressers joined together.
Vertical: A forward vertical merger/takeover is where a business merges
with a business at the next stage of the production process, for example a
business making furniture may merge with the retail outlet selling the
Vertical: A backward vertical merger/takeover is where a business merges
with a business at the previous stage of the production process, for
example the business making the furniture may merge with the business that
supplies the wood and parts for the furniture.
A lateral merger/takeover is where a business merges with a business who
makes similar goods to it but who are not in competition with each other,
for example if a chocolate bar manufacturer merged with a luxury chocolate
Some businesses join forces with other businesses to
share the cost of a project because it is too expensive for one business,
share expertise of staff and machinery etc.
This is known as a joint venture.
The benefits of joint ventures are:
have all the advantages of merges but no lose of company identity.
business can specalise in its field of expertise.
costs of mergers/takeovers are not incurred.
can be unfriendly and do not work staff are concerned about job
may be reduced due to joint venture.
Drawbacks of joint ventures:
benefits of the venture may not appear due to difficulties of running
one business for the venture.
about who is in charge can result.
profits are normally split this could cause problems if one business feels
it has put more effort, time, money than the other.
Mergers were very common during the late 1980s with
many companies merging with competitors and other businesses.
Whereas towards the end of the 1990s most companies have decided
that large companies with numerous businesses is in fact bad and leading to
un-competiteveness (due to dis-economies of scale), this has lead to a trend
of firms de-merging.
More and more mergers took place across borders within
the EU, as shown in the table below.