Theory question 101
Business Combinations(a) Differentiate between a merger and an acquisition.
(b) Explain five ways commerce is important in the life of a nation.
Show the model answer
(a) Merger: two or more companies agree to combine into one, usually forming a new company, and the old ones cease to exist separately.
Acquisition (takeover): one company buys a controlling interest in another; the buyer continues and the bought company loses its independence or disappears into it.
(b) Any five, each explained:
- Brings goods from producers to consumers (distribution) wherever they live.
- Creates employment for traders, bankers, transporters, insurers etc.
- Raises the standard of living by making a wide variety of goods available.
- Provides government revenue through taxes, duties and fees.
- Encourages production and specialisation by widening the market.
- Promotes international trade and friendly relations between countries.
- Banks and other financial institutions provide funds for development.
- Insurance reduces business risks; warehousing ensures steady supply.
- Advertising and communication spread information about goods.
Part (a) needs a clear contrast: new combined firm vs one firm buying another.