This is an example of horizontal integration as both firms are in the same industry and at the same stage of production.
(a) Combined Market Share
Step 1: Calculate combined sales.
Combined Sales = BeanCo Sales + MugLife Sales
Combined Sales = $80,000,000 + $45,000,000 = $125,000,000
Step 2: Calculate combined market share.
Market Share = (Combined Sales / Total Market Size) * 100
Market Share = ($125,000,000 / $500,000,000) * 100
Combined Market Share = 25%
(b) Post-Merger Annual Operating Profit
Step 1: Calculate combined operating costs before synergies.
Combined Costs = BeanCo Costs + MugLife Costs
Combined Costs = $60,000,000 + $38,000,000 = $98,000,000
Step 2: Calculate post-merger operating costs after synergies.
Post-Merger Costs = Combined Costs - Cost Synergies
Post-Merger Costs = $98,000,000 - $12,000,000 = $86,000,000
Step 3: Calculate post-merger operating profit.
Operating Profit = Combined Sales - Post-Merger Costs
Operating Profit = $125,000,000 - $86,000,000
Post-Merger Operating Profit = $39,000,000
Analysis: The merger increases market share significantly to 25%, creating a stronger competitive position. The synergies are crucial, as they are projected to increase the combined profit from a pre-merger total of $27m (($80m-$60m) + ($45m-$38m)) to $39m, an increase of $12m.