Knowledge

FC (fixed cost) is the cost of a certain goods and services that will no matter what stay constant
or is not depending on the amount of supply

VC (variable cost) is a cost that is more likely to change within time due to the reliant on price
with the stock of the goods and services

Economies of Scale occur when increasing output leads to lower long-run average costs. It
means that as firms increase in size, which they will become more efficient

Merger(-ing) a corporate strategy where different companies will combine into one company,
either to strengthen their financial or operational position. Companies may also try to merge in
order to increase their scale and productivity

Application

How or why businesses merge?

The most common factor is the potential growth of the business. A business merger may give
the acquiring company a chance to grow its market share. In addition, the diversification in
the business allows companies to take advantage when they choose to merge with another
business.

Mergers are also cost-effective. They can reduce the costs of developing business activities
that will complement a company’s strengths and can also increase the supply-chain pricing
power.

However, a merger can lead to less choice for consumers. This is important for industries such
as retail/clothing/food where choice is as important as price

Analysis

Why/How business mergers failed/ goes unsuccessful

- Inaccurate financials analysis/counting; If the data shared with us is incorrect, we will

then be working with incorrect data and may not catch all errors that may lead to
overinflate growth, underestimate the cost of services, or book revenue incorrectly,
which may lead them to a fail in merging since the price set for their product or services
may be fixed cost, so they cannot change the price to make it higher therefore
negative or no revenue

- Hidden debt and financial instability: If both company is not in an honest state or
condition in their financial condition, this may be very dangerous for both company as
they may have to pay a very big amount of money to cover up the debt and financial
instability, which may lead to either a negative in their balance sheet or them having not
enough money to make further development of the product that will make them
 increase the price of the product and services (variable cost) and make it into a
higher/high fixed cost

Why/How business mergers success

- Clearly define your strategy; a successful merger needs to have a clear vision and
mission for how it will tackle M&A value creation. It starts with a clear understanding of
where your business is currently, and what you value most in your company and the
future state you wish to achieve.

- Communication and transparency; another critical factor in a successful M&A is for

everyone on both sides to be informed and understand the vision and goals of the
merger or acquisition. Transparent and open communication will go a long way to
quelling harmful rumors and misunderstandings.

The leadership team should take time to show that they care and value their team by
keeping them updated on the changes happening, new strategies, new groups, and new
opportunities.

Conclusion

America Online merged with Time Warner in a deal valued at a stunning $350 billion. It was
then, and is now, the largest merger in American business history. In 2002, as investors pulled
out en masse of many Internet-related stocks, AOL Time Warner reported a quarterly loss of
$54 billion, the largest ever for a U.S. company. Time Warner spun off AOL in 2009. In 2018,
AT&T acquired Time Warner. The insurers have trouble successfully integrating, which will
increase costs and decrease the chances that the combined company can realize efficiencies.
This is really important. The potential windfall promised by the plan to sell Time Warner content
through the AOL network never materialized, and when the Internet bubble burst in 2001, the
company’s losses reached record proportions.

The companies have already had trouble detailing efficiencies when pressed by state insurance
regulators in public hearings. The companies should learn from the failed AOL-Time Warner
merger and call off the deal before they end up as yet another business school example of bad
managerial decisions.