Internal/External Growth, Integration Worksheet
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Jet Airways takes over Air Sahara in an acquisition or takeover. This is a form of external growth that gives Jet Airways a 32% share of the Indian airline market. Benefits may include cost reductions from consolidating operations and offering connecting flights on expanded routes. Daimler sells its stake in Chrysler after nine years of a failed merger between the German and American auto companies. Management and cultural issues, a lack of shared components between dissimilar car ranges, and failure to achieve expected economies of scale contributed to disappointing returns for shareholders.
Internal/External Growth, Integration Worksheet
- 1. UNIDAD EDUCATIVA BILINGUE NUEVO MUNDO WORKSHEET FOR ING 01 VER 15 04 11 Teacher: Alex Arancibia Name: …………………………… Course: 2nd Bach Section:………………………… Subject: Business & Management Date: ……………………………. Activity: internal growth expansion of a business by means of opening new branches, shops or factories (also known as organic growth). An example of internal growth would be a retailing business opening more shops in towns and cities where it previously had none. external growth business expansion achieved by means of merging with or taking over another business, from either the same or a different industry. External growth is often referred to as integration as it involves bringing together two or more firms. horizontal integration integration with firm in the same industry and at same stage of production forward vertical integration integration with a business in the same industry but a customer of the existing business backward vertical integration integration with a business in the same industry but a supplier of the existing business conglomerate integration merger with or takeover of a business in a different industry merger an agreement by shareholders and managers of two businesses to bring both firms together under a common board of directors with shareholders in both businesses owning shares in the newly merged business takeover when a company buys over 50% of the shares of another company and becomes the controlling owner – often referred to as ‘acquisition’ Approved by: ________________________ Date: 13 jun 2012 # of copies: ____ Pages: 1/__
- 2. Approved by: ________________________ Date: 13 jun 2012 # of copies: ____ Pages: 2/__
- 3. Read the case studies below and then answer the questions that follow. Jet Airways takes over Air Sahara India’s largest private airline, Jet Airways, says it has agreed to buy out its smaller rival, Air Sahara, for $140 million. The takeover gives the airline a combined market share of 32%. Jet Airways acquires the aircraft, equipment and landing and take-off rights at the airports Air Sahara had. ‘This deal is definitely going to be good news for Jet Airways shareholders,’ Jet Airways founder and chairman, Naresh Goyal, said. Some analysts are predicting substantial synergy (cost reductions and other benefits) from this takeover. Better deals from aircraft manufacturers are expected. Streamlining the two head offices into one unit should reduce fixed costs. The interlinking of the different air routes should allow more passengers to be offered connecting flights with the new enlarged airline. Before the takeover could go ahead, it had to be approved by the Indian Ministry of Company Affairs. There was some concern that the takeover could lead to a monopolistic position, as Jet Airways will now enjoy a dominant position on many domestic air routes. Source: www.bbc.co.uk Daimler sells Chrysler after failed merger After nine years of trying to make the merger of two large car makers work successfully, Mercedes Benz has at last admitted defeat and sold its 80% stake in the US-based operator, Chrysler. The merger never increased returns to shareholders and it failed in its original aim of creating a global motor company to compete effectively with General Motors, Ford and Toyota. Management problems in controlling the merged businesses were huge. Distance between Germany (Mercedes Benz) and the USA (Chrysler) made communication difficult. The car ranges of the two companies had very little in common so there were few shared components, and economies of scale were less than expected. Culture clashes between the two management approaches led to top-level director disputes over the direction the merged business should take. Source: www.timesonline.co.uk 1 Classify the type of integration used in both of these case studies. Explain your answer. 2 If Jet Airways were now to merge with an aircraft manufacturer: a how would this merger be classified? Explain your answer. b analyse two potential benefits to Jet Airways of this merger. 3 Assess the likely impact of the Jet Airways takeover of Air Sahara on any two stakeholder groups. 4 Using the DaimlerChrysler case study and any other researched examples, e.g. AOL and Time Warner, discuss why many mergers and takeovers fail to give shareholders the benefits originally predicted. Approved by: ________________________ Date: 13 jun 2012 # of copies: ____ Pages: 3/__