Question

Question: I chose Cuppa Joe and Roaster's as a business combination. Can you provide in detail three ways on how would consolidating resources can lower costs and improve efficiency? See the table below.

Unit 5 Discussion: Business Combinations

Unit 5 Table

Company	Radical Inc.	Cuppa Joe	Royal Books	Battin’ a Thousand	Roasters	Shakespeare and Co.	Sk8tr
Product	snow board, surf and skateboard manufg.	Coffee beverages Retailer	Retail books	Sporting Goods Retailer	Roasted coffee	Small Press Publisher	Boards and apparel Retailer
Capital Structure	all equity	all equity firm	25% debt-75% equity	75% debt-25% Equity	50%-50%	All equity	50% -50%
Location	Wholesaler	bricks and mortar kiosks	bricks and mortar	bricks and mortar	Wholesaler	Wholesaler	Online
Tax loss Carry-forward	no	no	yes	yes	no	no	no

Answer 1

Business combinations:

1) Radical Inc. and Barton's a Thousand:-

Radical Inc. is a wholesale manufacturer of snowboard, surfboard and skateboard. All these products belong to sports goods category. Battin' a Thousand is a sports good retailer. So, if they integrate their businesses, they can lower their costs by in-house production and marketing of sports goods. This would lead to cost optimization and a more efficient and robust business model. So, Radical Inc. would not have to look out for buyers of its goods and Battin' a Thousand need not have to search for their suppliers.

2) Cuppa Joe and Roasters:-

​Cuppa Joe is a coffee beverages retailer. It has a product mix of variety of coffee beverages. Roasters is a wholesale manufacturer of roasted coffee beans which is the primary raw material required for making different coffee beverages. If they merge their businesses, it would create a synchronous value chain in terms of authentic coffee beverages being served due to in-house production of roasted coffee. Maintaining a peculiar taste and quality of coffee would build up a loyal customer base for their products. Also, they could offer different coffee beverages at competitive prices based on cost efficiency attained thereby enhancing their market share in this business vertical.

3) Royal Books and Shakespeare & Co.:-

Royal Books is a books retailer offering a variety of books on different subjects. Shakespeare & Co. is a wholesaler involved in publishing business and has its own printing press. So, if they integrate their businesses, they could achieve the target of cost optimization due to economies of scale of printing and selling books under a single roof. It could serve as a one stop shop for book lovers. They could develop a competitive pricing strategy for their books and build up a sound value proposition of their business by aggregating the key value drivers through backward and forward integration.