Business growth — practice questions

Type: Vertical backward integration — controls content supplier (upstream).

Benefits: Secure exclusive shows, cost control, quality coordination, barrier to rivals lacking content.

Risks: $ billions purchase (5.2, 10.3); culture clash creative vs tech; regulator antitrust if too dominant (6.1.1 political/legal).

vs horizontal: Not buying rival streamer — different strategic logic.

Evaluate: Strong if content is bottleneck; weak if overpaid or creatives leave.

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 $12m.$