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Assess the likely impact on a business such as Pfizer, of a global merger with a business such as Allergan. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Question 2
Assess the likely impact on a business such as Pfizer, of a global merger with a business such as Allergan.
Worked Solution & Example Answer:Assess the likely impact on a business such as Pfizer, of a global merger with a business such as Allergan. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Step 1
Global merger and tax implications
Answer
A global merger occurs when companies from different countries combine assets and operations. In this case, Pfizer, which is based in the USA while Allergan is based in Ireland, benefits from lower corporation tax rates in Ireland. This could lead to increased available profits for Pfizer as they look to maximize their operations under a more favorable tax regime.
Step 2
Market expansion and product lifecycle
Answer
The merger allows Pfizer to enter additional markets for some of its products, such as Botox, therefore spreading its risk over new markets and extending the product lifecycle of established drugs. Being based in the EU enables Pfizer to trade freely within EU member states, thereby enhancing its growth opportunities.
Step 3
Operational challenges and cultural differences
Answer
However, there are potential challenges. Allergan is an established business with its own processes and culture which Pfizer may not fully understand. This could require extensive market research, leading to increased operational costs. Additionally, human resource implications may arise from overlaps in roles, and it was not definitively known how many jobs would be at risk as a result of this merger.
Step 4
Reputation and long-term impacts
Answer
The focus on reducing tax liabilities from the merger could damage Pfizer’s reputation in the public eye as a player in the pharmaceutical sector. Furthermore, the longer-term impacts could include difficulties in aligning the new business to meet strategic objectives and challenges managing the scale effectively.