Professional Documents
Culture Documents
Case 9e
Case 9e
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Objectives
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Chapter 7: Acquisition and Restructuring
Strategies
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Global Merger and Acquisition (M&A) Activity
During a Global Crisis
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Chapter 7: Acquisition and Restructuring
Strategies
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Introduction:
Popularity of M&A Strategies
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Introduction:
Merger vs. Acquisition vs. Takeover (Cont’d)
• Merger
– Two firms agree to integrate their operations on a
relatively co-equal basis
• Acquisition
– One firm buys a controlling, 100 percent interest in
another firm with the intent of making the acquired
firm a subsidiary business within its portfolio.
• Takeover
– Special type of acquisition strategy wherein the target
firm did not solicit the acquiring firm's bid
– Hostile Takeover: Unfriendly takeover that is
unexpected and undesired by the target firm
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Chapter 7: Acquisition and Restructuring
Strategies
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Reasons for Acquisitions and Problems in
Achieving Success
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Reasons for Acquisitions
• 1. Increased market power : able to sell its goods or services
above competitive levels or when the costs of its primary or support
activities are lower than those of its competitors and it can become a
market leader
– Sources of market power include
• Size of the firm, resources and capabilities to compete in the
market and share of the market
– Horizontal Acquisitions
• Acquirer and acquired companies compete in the same industry
• McDonald’s acquisition of Boston Market, Aqua yang diakuisisi oleh
Danone
– Vertical Acquisitions
• Firm acquires a supplier or distributor of one or more of its goods
or services; leads to additional controls over parts of the value
chain
• i.e., Walt Disney Company’s acquisition of Fox Family Worldwide.
– Related Acquisitions
• Firm acquires another company in a highly related industry, Boeing
recently acquired eXMeritus Inc
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Reasons for Acquisitions (Cont’d)
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Chapter 7: Acquisition and Restructuring
Strategies
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Problems in Achieving
Acquisition Success
• 1. Integration difficulties
– the post-acquisition integration phase is probably the
single most important determinant of shareholder value
creation, TIPCE
• 2. Inadequate evaluation of target
– In an effective due-diligence process, hundreds of
items are examined in areas of financing, tax,
transaction, cultures, that would successfully meld the
two workforces.
• 3. Large or extraordinary debt
– Junk bonds: financing option whereby risky
acquisitions are financed with money (debt) that
provides a large potential return to lenders
(bondholders) with high interest
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Problems in Achieving
Acquisition Success (Cont’d)
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Problems in Achieving
Acquisition Success (Cont’d)
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Problems in Achieving
Acquisition Success (Cont’d)
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Problems in Achieving
Acquisition Success (Cont’d)
• 7. Too large
– Bureaucratic controls
• Formalized supervisory and behavioral rules and policies
designed to ensure consistency of decisions and actions
across different units of a firm – formalized controls decrease
flexibility
– Additional costs may exceed the benefits of the
economies of scale and additional market power
– Larger size may lead to more bureaucratic controls
– Formalized controls often lead to relatively rigid and
standardized managerial behavior
– Firm may produce less innovation
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Chapter 7: Acquisition and Restructuring
Strategies
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Effective Acquisitions
• Complementary assets or resources
• Friendly acquisitions facilitate integration of firms
• Effective due-diligence process (assessment of
target firm by acquirer, such as books, culture,
etc.)
• Financial slack
• Low debt position
– High debt can…
• Increase the likelihood of bankruptcy
• Lead to a downgrade in the firm’s credit rating
• Preclude needed investment in activities that contribute to the
firm’s long-term success
• Innovation
• Flexibility and adaptability
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Effective Acquisitions – IBM SPSS
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Chapter 7: Acquisition and Restructuring
Strategies
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Restructuring
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Restructuring (Cont’d)
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Restructuring
• Restructuring Outcomes
– Short-term
• Reduced costs: labor and debt
• Emphasis on strategic controls
– Long-term
• Loss of human capital
• Performance: higher/lower
• Higher risk
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Restructuring and Outcomes
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