Professional Documents
Culture Documents
Growth / Retrenchment!
Market power
Risk aversion
Dividends to shareholders
Managerial motives
Managerial motives:
Decisions and strategies of managers employed by a firm might be different from those with an equity stake in the business Behavioural theories of the firm suggest that pure profit maximisation is difficult to achieve and rarely seen
Theory bit
Internal growth
Expansion of existing production facilities
Opening of new retail outlets Taking on more staff
Catalogue
Diversify into new products.
External Growth
External Growth
Integration The bringing together of two or more firms
Merger When two or more firms agree to become integrated to form one firm under joint ownership + + An agreement Takeover
A + + B = + AB
When one firm gains control over another and becomes the owner, can be achieved by buying 51% of the shares
Can be hostile
A + + + B + = + A
Examples
Examples
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So who/what is Tata?
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http://news.bbc.co.uk/1/hi/world/south_asia/6071090.stm
Tata
Ratan Tata, 69, who controls the $22bn Tata group, which includes 96 companies manufacturing a range of products from automobiles to watches, steel to fertilisers.
Types of Intergration
Horizontal integration
Horizontal integration:
Horizontal integration occurs when two businesses in the same industry at the same stage of production become one for example a merger between two car manufacturers or drinks suppliers The takeover of Safeway by Morrisons is example of the process of horizontal integration. (for 2.9bn)
652m
$850m
"This is a once in a lifetime opportunity to combine two of the most respected and well-known companies in the worldwide sporting goods industry", CEO Adidas
= Horizontal integration
Lateral Integration
Lateral integration occurs when two businesses join together that produce similar but related products
Ottakars and HMV Sony and BMG eBay and Skype
Vertical integration
Vertical integration:
Vertical Integration involves acquiring a business in the same industry but at different stages of the supply chain Uses primary, secondary and tertiary industries For example an oil company that owns drilling and extraction businesses together with refining, distribution and retail subsidiaries.
Vertical Integration
Forward
Backward
Tertiary businesses that integrates with secondary business. Secondary business that integrates with a primary supplier
Forward
A primary business that integrates with a secondary manufacturer A Secondary manufacturer that integrates with a tertiary business.
Backwards
Broadcaster BSkyB acquired television settop box maker Amstrad for about 125m. Sky said that the deal meant they could now save money, design their products in-house and be more innovative.
Conglomerate integration
Conglomerate Integration or diversification is when a company buys another firm in an unrelated industry, often to spread risk.
Glazer's 60-year business career, incorporating property, fish, fast food restaurants, local television stations and nursing homes
Summary
Direction Forward + vertical Explanation Acquiring a business further up in the supply chain e.g. manufacturer buys a distributor
Backward + vertical Acquiring a business operating earlier in the supply chain e.g. a retailer buys a wholesaler Horizontal Acquiring a business at the same stage of the supply chain e.g. a manufacturer buys a competitor Where the acquisition has no clear connection to the business buying it
Conglomerate
External Growth
TUI merge with First Choice Watch these 2 video clips In each case identify the objectives of the mergers, the advantages and any potential disadvantages
Identify the different reasons for and approaches to these takeovers Why might the Government intervene to disallow a takeover?
Horizontal integration
Horizontal? integration
Horizontal integration