stayingcompetetive - ProFile 3 UNIT 8 Staying competitive...

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Unformatted text preview: ProFile 3 UNIT 8 Staying competitive MERGERS AND TAKEOVERS A merger occurs when two companies decide to become a single company by mutual consent. A takeover occurs when a bidder manages to acquire a controlling interest of the shares in the target company. Sometimes the line between them is unclear. Takeover bids are often perceived as hostile by the management of the business which is being targeted. However they may be welcomed more warmly by its shareholders, as in the frenzy leading up to takeover, share prices in the firm under attack may rise rapidly as the competition to buy them heats up. TYPES OF MERGER A producer of computers may wish to acquire a company which produces components in order to guarantee a steady supply. This is an example of a vertical merger, because it moves towards establishing the vertical integration of the business. In other instances, a business might buy a competitor in the same field. Reasons for this could be to obtain greater market share and penetration, to acquire the company’s know-how and name, or to get rid of a rival. This is called a horizontal merger. and expertise in mobile technology. Other joint ventures could involve businesses with different areas of expertise working as a consortium on large civil-engineering projects. For instance, in constructing a hydro-electric dam one firm would provide the turbines, another builds the structure, while a third provides the power stations and lines. BUZZ WORDS: SYNERGY AND SYMBIOSIS synergy Synergy is often used as a justification for mergers or takeovers. It is commonly expressed as the 1+1=3 effect. The theory goes that together businesses will be stronger and more effective than the sum of their separate parts. A maker of tennis racquets which buys a maker of tennis balls will be able to use the same sales force for both ranges and pool their technology. symbiosis A symbiotic relationship is mutually beneficial and supportive. Symbiosis is used as a justification for companies working together. Loss in shareholder value following a merger is an extremely common phenomenon, yet interest in mergers persists. One reason may be that the consultants employed to study the merger make enormous fees on completion of the deal – Many consultants have M & A departments (Mergers and Acquisitions). JOINT VENTURES Joint ventures should not be confused with mergers. They occur when two companies work together on a given project or for a period, without merging. Siemens of Germany and Fujitsu of Japan are a successful example of this. Both companies recognized a complementary fit between Fujitsu’s technical innovation, and Siemens’ engineering skills See the ProFile Student’s site: Photocopiable © Oxford University Press ...
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