“Snack Giant Mondelez Makes $23 Billion Takeover Bid for Hershey” and “Sales Pressure on Mondelez, Hershey...

“Snack Giant Mondelez Makes $23 Billion Takeover Bid for Hershey” and “Sales Pressure on Mondelez, Hershey Could Bolster Case for Merger”

Describe/explain how Mondelez is pursuing economies of scope.

Expert Solution

Economies of scope is when long term costs for a company decreases, not due to increase in volume of production (that is economies of scale) but due to increase in variety of production. An economy of scope means that the production of one good reduces the cost of producing another related good.

How does this apply to Mondelez and Hershey merger:

A larger company is able to offer a wider choice of custom products. Rather than just producing off-the-peg models, a firm can produce a greater range of products to cater to every taste and preference. Mondelez may not have been able to Hershey market because of consumer preferences. Internalising it by a merger will help sales of Mondelez or Hershey, either way, Mondelez profits.
Cut costs that go on competitive research and prices. These costs can be better utilised for quality augmentation and improving the supply chain, thus raising sales.
Geographical expansion: Pockets of world may differently have preferences for either Hersheys or Mondelez. But with a merger, these geographical reach is evened out. It can offer regional variations.
Goods in Hershe and Mondelez with same production process can be produced together reducing costs of production. Because both the companies manufacture many close goods, it is feasible to assume that many of them undergo similar production.
Reduced anticipation of future: Both competitors may be under pressure to cater to changing consumer preferences and look to beat each other with different products. The research and manpower behind this effort can be saved substantially.

All the benefits that accrue from the merger will go into lowering the long term costs or augmenting sales of the company.

Thanks!

Rahul Sunny answered 2 years ago

In 2016, Monsanto’s board accepted a $66 billion takeover offer from Bayer – Germany’s giant chemical...

In 2016, Monsanto’s board accepted a $66 billion takeover offer from Bayer – Germany’s giant chemical and agricultural company. This takeover raises antitrust issues – creating one company with a large share of agricultural market for seeds and insecticides – that will require consideration by the U.S. government and the European Union. Discuss two or three of the key issues that Bayer's management considered in making this investment in the United States. Since the deal close Bayer's shares have lost...

In August 1998, AMP launched a hostile $3.3 Billion takeover bid for the GIO Insurance Group....

In August 1998, AMP launched a hostile $3.3 Billion takeover bid for the GIO Insurance Group. The takeover took 17 months, and was finally concluded in December 1999 when AMP acquired a 100% controlling interest in GIO. Shareholders in GIO were initially offered $5.35 per share, or one AMP share for every four GIO shares. The cash offer represented (approximately) a 30% premium on the market value of GIO shares. The share exchange, based on AMP’s share price at the...

Internet giant Zoidle, a U.S. company, generated sales of £2.5 billion in the United Kingdom in...

Internet giant Zoidle, a U.S. company, generated sales of £2.5 billion in the United Kingdom in 2013 (approximately $4 billion in U.S. dollars). Its net profits before taxes on these sales were £200 million, and it paid £6 million in corporate tax, resulting in a tax rate of 3 percent. The corporate tax rate in the United Kingdom is between 20 percent and 24 percent. The CEO of Zoidle held a press conference stating that he was proud of his...

Firm A had sales of $23 billion in 2012. Suppose you expected its sales to grow...

Firm A had sales of $23 billion in 2012. Suppose you expected its sales to grow at a rate of 10% in 2013, but then slow by 0.5% per year to the long-run growth rate that is characteristic of the industry—7.5%—by 2018. Based on Firm A’s past profitability and investment needs, you expect EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increase in sales, and capital expenditures to equal depreciation expenses....

Frito-Lay's Quality-Controlled Potato Chips Video Case Frito-Lay, the multi-billion-dollar snack food giant, produces billions of pounds...

Frito-Lay's Quality-Controlled Potato Chips Video Case Frito-Lay, the multi-billion-dollar snack food giant, produces billions of pounds of product every year at its dozens of U.S. and Canadian plants. From the farming of potatoes—in Florida, North Carolina, and Michigan—to factory and to retail stores, the ingredients and final product of Lay’s chips, for example, are inspected at least 11 times: in the field, before unloading at the plant, after washing and peeling, at the sizing station, at the fryer, after seasoning,...

7–2. Ethical Conduct. Internet giant Zoidle, a U.S. company, generated sales of £2.5 billion in the...

7–2. Ethical Conduct. Internet giant Zoidle, a U.S. company, generated sales of £2.5 billion in the United Kingdom in 2013 (approximately $4 billion in U.S. dollars). Its net profits before taxes on these sales were £200 million, and it paid £6 million in corporate tax, resulting in a tax rate of 3 percent. The corporate tax rate in the United Kingdom is between 20 percent and 24 percent. The CEO of Zoidle held a press conference stating that he was...

1 Frito-Lay’s Quality-Controlled Potato ChipsFrito-Lay’s Quality-Controlled Potato Chips Frito-Lay, the multi-billion-dollar snack food giant, produces billions...

1 Frito-Lay’s Quality-Controlled Potato ChipsFrito-Lay’s Quality-Controlled Potato Chips Frito-Lay, the multi-billion-dollar snack food giant, produces billions of pounds of product every year at its dozens of U.S. and Canadian plants. From the farming of potatoes—in Florida, North Carolina, and Michigan—to factory and to retail stores, the ingredients and final product of Lay’s chips, for example, are inspected at least 11 times: in the field, before unloading at the plant, after washing and peeling, at the sizing station, at the fryer,...

Question