10. Two directions of integration (1) Forward Backwards Horizontal Vertical
11. Two directions of integration (2) Direction Explanation Forward + vertical 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 Conglomerate Where the acquisition has no clear connection to the business buying it
12. Example (1) "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
13. Example (2) Broadcaster BSkyB acquired television set-top 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. = Backward vertical integration
14. What is “Synergy”? The whole is greater than the sum of the individual parts
15. Two kinds of “synergy” Eliminate duplicated functions & services Better deals from suppliers Higher productivity & efficiency from shared assets Cost Savings Cross-selling to customers of both businesses Access to new distribution Brand extensions New geographic markets opened up Revenues
16. But acquisitions usually fail It is widely accepted that over 50-70% of takeovers destroy shareholder value
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