bilingual series-strategic management chapter 7. acquisition and restructuring strategies

Bilingual Series-Strategic Management

Chapter 7

Acquisition and Restructuring

Strategies

Acquisition and Restructuring

Strategies

Mergers and AcquisitionsMergers and AcquisitionsMergers and AcquisitionsMergers and Acquisitions

MergerMergerA transaction where two firms agree to integrate their A transaction where two firms agree to integrate their operations on a relatively coequal basis because they operations on a relatively coequal basis because they have resources and capabilities that together may create have resources and capabilities that together may create a stronger competitive advantagea stronger competitive advantage

AcquisitionAcquisitionA transaction where one firm buys another firm with the A transaction where one firm buys another firm with the intent of more effectively using a core competence by intent of more effectively using a core competence by making the acquired firm a subsidiarymaking the acquired firm a subsidiary

TakeoverTakeoverAn acquisition where the target firm did not solicitAn acquisition where the target firm did not solicit the bid the bid of the acquiring firmof the acquiring firm

Problems inProblems inAchieving SuccessAchieving Success

Problems inProblems inAchieving SuccessAchieving Success

IntegrationIntegrationdifficultiesdifficulties

Inadequate Inadequate evaluation of targetevaluation of target

Too muchToo muchdiversificationdiversification

Large orLarge orextraordinary debtextraordinary debt

Inability toInability toachieve synergyachieve synergy

Managers overlyManagers overlyfocused on acquisitionsfocused on acquisitions

Too largeToo large

IncreasedIncreasedmarket powermarket power

OvercomeOvercomeentry barriersentry barriers

Lower riskLower riskcompared to developing compared to developing

new productsnew products

Cost of newCost of newproduct developmentproduct development

Increased speedIncreased speedto marketto market

IncreasedIncreaseddiversificationdiversification

Avoid excessiveAvoid excessivecompetitioncompetition

AcquisitionsAcquisitions

Reasons forReasons forAcquisitions Acquisitions

Reasons for AcquisitionsReasons for AcquisitionsReasons for AcquisitionsReasons for Acquisitions

Example:Example: Belgian-Dutch Fortis’ acquisition of American Banker’s Belgian-Dutch Fortis’ acquisition of American Banker’s Insurance GroupInsurance Group

Example:Example: Sohu.com acquired ChinaRen.comSohu.com acquired ChinaRen.com

Example: Example: British Petroleum’s acquisition of U.S. AmocoBritish Petroleum’s acquisition of U.S. Amoco

Increased Market PowerIncreased Market PowerAcquisition intended to reduce the competitive balance of the industryAcquisition intended to reduce the competitive balance of the industry

Overcome Barriers to EntryOvercome Barriers to EntryAcquisitions overcome costly barriers to entry which may make “start-ups” Acquisitions overcome costly barriers to entry which may make “start-ups” economically unattractiveeconomically unattractive

Buying established businesses reduces risk of start-up venturesBuying established businesses reduces risk of start-up ventures

Lower Cost and Risk of New Product DevelopmentLower Cost and Risk of New Product Development

Example:Example: Nortel’s acquisition of Bay NetworksNortel’s acquisition of Bay Networks

Example:Example: Kraft Food’s acquisition of Boca BurgerKraft Food’s acquisition of Boca Burger

Example:Example: JiaoDa’s acquisition of CaiyuanJiaoDa’s acquisition of Caiyuan

Reasons for AcquisitionsReasons for AcquisitionsReasons for AcquisitionsReasons for Acquisitions

Increased Speed to MarketIncreased Speed to MarketClosely related to Barriers to Entry, allows market entry in a more Closely related to Barriers to Entry, allows market entry in a more timely fashiontimely fashion

DiversificationDiversificationQuick way to move into businesses when firm currently lacks experience and Quick way to move into businesses when firm currently lacks experience and depth in industrydepth in industry

Reshaping Competitive ScopeReshaping Competitive ScopeReshaping Competitive ScopeReshaping Competitive ScopeFirms may use acquisitions to restrict its dependence on a single or a few Firms may use acquisitions to restrict its dependence on a single or a few products or marketsproducts or markets

Problems with AcquisitionsProblems with Acquisitions

Example:Example: Marks and Spencer’s acquisition of Brooks BrothersMarks and Spencer’s acquisition of Brooks Brothers

Example:Example: Intel’s acquisition of DEC’s semiconductor divisionIntel’s acquisition of DEC’s semiconductor division

Example:Example: AgriBioTech’s acquisition of dozens of small seed firmsAgriBioTech’s acquisition of dozens of small seed firms

Integration DifficultiesIntegration DifficultiesDiffering financial and control systems can make integration of firms Differing financial and control systems can make integration of firms difficultdifficult

Inadequate Evaluation of TargetInadequate Evaluation of Target““Winners Curse” bid causes acquirer to overpay for firmWinners Curse” bid causes acquirer to overpay for firm

Large or Extraordinary DebtLarge or Extraordinary DebtLarge or Extraordinary DebtLarge or Extraordinary DebtCostly debt can create onerous burden on cash outflowsCostly debt can create onerous burden on cash outflows

Example:Example: Ford and JaguarFord and Jaguar

Example:Example: JiaoDa and CaiyuanJiaoDa and Caiyuan

Example:Example: GE--prior to selling businesses and refocusingGE--prior to selling businesses and refocusing

Inability to Achieve SynergyInability to Achieve SynergyJustifying acquisitions can increase estimate of expected benefitsJustifying acquisitions can increase estimate of expected benefits

Problems with AcquisitionsProblems with Acquisitions

Overly DiversifiedOverly DiversifiedAcquirer doesn’t have expertise required to manage unrelated businessesAcquirer doesn’t have expertise required to manage unrelated businesses

Managers Overly Focused on AcquisitionsManagers Overly Focused on AcquisitionsManagers Overly Focused on AcquisitionsManagers Overly Focused on AcquisitionsManagers may fail to objectively assess the value of outcomes Managers may fail to objectively assess the value of outcomes achieved through the firm’s acquisition strategyachieved through the firm’s acquisition strategy

Too LargeToo LargeLarge bureaucracy (Large bureaucracy (官僚官僚 ) ) reduces innovation and flexibilityreduces innovation and flexibility

Attributes of Effective AcquisitionsAttributes of Effective AcquisitionsAttributes of Effective AcquisitionsAttributes of Effective Acquisitions

Complementary Assets or ResourcesComplementary Assets or ResourcesBuying firms with assets that meet current needs to Buying firms with assets that meet current needs to build competitivenessbuild competitiveness

++

Friendly AcquisitionsFriendly AcquisitionsFriendly AcquisitionsFriendly AcquisitionsFriendly deals make integration go more smoothlyFriendly deals make integration go more smoothly

++

Careful Selection ProcessCareful Selection ProcessCareful Selection ProcessCareful Selection ProcessDeliberate evaluation and negotiations is more likely to lead to Deliberate evaluation and negotiations is more likely to lead to easy integration and building synergieseasy integration and building synergies

++

Maintain Financial Slack (Maintain Financial Slack ( 充足的资金充足的资金 ))Maintain Financial Slack (Maintain Financial Slack ( 充足的资金充足的资金 ))Provide enough additional financial resources so that Provide enough additional financial resources so that profitable projects would not be foregoneprofitable projects would not be foregone

++

Attributes of Effective AcquisitionsAttributes of Effective AcquisitionsAttributes of Effective AcquisitionsAttributes of Effective Acquisitions

Low-to-Moderate DebtLow-to-Moderate DebtLow-to-Moderate DebtLow-to-Moderate DebtMerged firm maintains financial flexibilityMerged firm maintains financial flexibility

++

FlexibilityFlexibilityFlexibilityFlexibilityHas experience at managing change and is flexible and adaptableHas experience at managing change and is flexible and adaptable

++

Emphasize Innovation Emphasize Innovation Emphasize Innovation Emphasize Innovation Continue to invest in R&D as part of the firm’s overall strategyContinue to invest in R&D as part of the firm’s overall strategy

++

Example:Example: Procter & Gamble’s cutting of its worldwide Procter & Gamble’s cutting of its worldwide workforce by 15,000 jobsworkforce by 15,000 jobs

Restructuring ActivitiesRestructuring ActivitiesRestructuring ActivitiesRestructuring Activities

Example:Example: Disney’s selling of Fairchild PublicationsDisney’s selling of Fairchild Publications

DownsizingDownsizingWholesale reduction of employeesWholesale reduction of employees

DownscopingDownscopingDownscopingDownscoping

Reducing scope of operationsReducing scope of operations

Selectively divesting or closing non-core businessesSelectively divesting or closing non-core businesses

Leads to greater focusLeads to greater focus

Leveraged Buyout (LBO)Leveraged Buyout (LBO)

--A party buys a firm’s entire assets in order to take the firm --A party buys a firm’s entire assets in order to take the firm private. private.

--occurs when a corporation’s shareholders are bought by the --occurs when a corporation’s shareholders are bought by the company’s management and other private investors using company’s management and other private investors using borrowed funds (leverage / interests)borrowed funds (leverage / interests)

--hostile takeover can be avoided--hostile takeover can be avoided

--senior management decisions that particular divisions do not fit --senior management decisions that particular divisions do not fit into an overall corporate strategy or must be sold to raise cash, or into an overall corporate strategy or must be sold to raise cash, or receipt of an attractive offering price. receipt of an attractive offering price.

Restructuring ActivitiesRestructuring ActivitiesRestructuring ActivitiesRestructuring Activities

DownsizingDownsizingDownsizingDownsizing


LeveragedLeveragedBuyoutBuyout


AlternativesAlternativesShort-Term Short-Term OutcomesOutcomes

Long-Term Long-Term OutcomesOutcomes

Restructuring and OutcomesRestructuring and Outcomes

Loss of Loss of Human CapitalHuman Capital

Lower Lower PerformancePerformance

Lower Lower PerformancePerformance

DownsizingDownsizingDownsizingDownsizing

Reduced Reduced Labor CostsLabor Costs

Reduced Reduced Labor CostsLabor Costs

AlternativesAlternatives Short-Term Short-Term OutcomesOutcomes



Higher Higher PerformancePerformance


Reduced Debt Reduced Debt CostsCosts

Reduced Debt Reduced Debt CostsCosts

Emphasis on Emphasis on Strategic ControlsStrategic Controls



Downsizing

Reduced Labor Costs

Loss of Human Capital

Lower Performance




High Debt High Debt CostsCosts

High Debt High Debt CostsCosts



Downscoping



Reduced Debt Costs



Higher RiskHigher RiskHigher RiskHigher Risk

Downsizing

Reduced Labor Costs

Loss of Human Capital

Lower Performance




bilingual series-strategic management chapter 7. acquisition and restructuring strategies

Documents