Acq & Merger

8/6/2019 Acq & Merger

1/16

8-1 2006 by Nelson, a division of Thomson Canada Limited.

Chapter 8

Acquisition and Restructuring

Strategies

Chapter Eight


2/16


Chapter 5Bus. - Level

Strategy

Chapter 6Competitive

Dynamics

Chapter 9International

Strategy

Chapter 10CooperativeStrategies

Chapter 8Acquisitions &Restructuring

Chapter 11

Corporate

Governance

Chapter 12

Structure

& Control

Chapter 13Strategic

Leadership

Chapter 14Entrepreneurshi

& Innovation

Strateg

ic

Inputs

Strateg

icActions

Strategic

Outcom e

s

Chapter 4Internal

Environment

Chapter 3External

Environment Strat. Intent

Strat. Mission

TheStrategic

Management .

Process

Strategy Formulation Strategy Implementation

StrategicCompetitiveness

Chapter 1

Above AverageReturns

Chapter 2 Feedback

StrategicCompetitiveness

Chapter 1

Chapter 7Corp. - Level

Strategy

Chapter 5Bus. - Level

Strategy

Chapter 6Competitive

Dynamics

Chapter 8Acquisitions &Restructuring

TheStrategic Management Process


3/16


Acquisition and Restructuring Strategies

Knowledge Objectives:

1. Explain the popularity of acquisition strategies for firmscompeting in the global economy.

2. Discuss reasons firms use an acquisition strategy to

achieve strategic competitiveness.

3. Describe seven problems that work against developing a

competitive advantage using an acquisition strategy.

4. Name and describe attributes of effective acquisitions.

5. Define the restructuring strategy and distinguish amongits common forms.

6. Explain the short-term and long-term outcomes of the

different types of restructuring strategies.


4/16


Merger:

A transaction where two firms agree to

integrate their operations on a relatively co-equal basis.

Mergers and Acquisitions

*


5/16


Acquisition:A strategy where one firm buys a controlling

or 100% interest in another firm with the intent

of making the acquired firm a subsidiary

within its portfolio.

Takeover:An acquisition where the target firm did not

solicit the bid of the acquiring firm.

Mergers and Acquisitions


6/16


Horizontal AcquisitionThe acquisition of a company competing in the

same industry in which the acquiring firmcompetes.

Vertical Acquisition

A firm acquiring a supplier of distributor of oneor more of its goods or services.

Related Acquisition

The acquisition of a firm in a highly related

industry.


7/16


Reasons for Acquisitions


8/16


Pharmaceutical firms access new products through

acquisitions of other drug manufacturers

Alcans purchase of Pechiney (Ch. 1 opening case)


Best Buys purchase of Future Shop

Increased Market Power

Acquisition intended to reduce the competitive balanceof the industry

Overcome Barriers to EntryAcquisitions overcome costly barriers to entry which may

make start-ups economically unattractive

Buying established businesses reduces risk of start-

up ventures

Lower Cost & Risk of New Product Development


9/16



Torontos Onex Corporation

British Telcoms Acquisition of Irelands East Telecom

The Jim Pattison Group of Companies

Increased Speed to Market

Closely related to Barriers to Entry, allows marketentry in a more timely fashion

Increasing Diversification and Competitive ScopeFirms may use acquisitions to restrict dependence on asingle or a few products or markets

Avoiding Excessive Competition

Firms may acquire businesses in which competitive

pressures are less intense than in their core business


10/16



The Jim Pattison Group of Companies

Angiotech: a Vancouver based research lab.

Learn & Develop New CapabilitiesAcquiring firms with new capabilities helps the

acquiring firm to learn new knowledge and remain

agile.

Reshape the firms competitive scopeReducing a firms dependence on specific markets altersthe firms competitive scope.


11/16


Problems With Acquisitions


12/16


TransCanadas acquisition of Nova Corp

Dynegys near purchase of Enron

TD Banks acquisition of Canada Trust

Problems with Acquisitions

Integration Difficulties

Differing cultures may make integration of firmsdifficult.

Inadequate Evaluation of TargetWinners Curse causes acquirer to overpay for firm.

Large or Extraordinary Debt

Costly debt can create onerous burden on cash outflows.


13/16


Problems with Acquisitions

Vivendis purchase of Seagram Co. Ltd.

GE--prior to selling businesses and refocusing

Futurelink

Inability to Achieve SynergyJustifying acquisitions can increase estimate

of expected benefits.

Overly DiversifiedAcquirer doesnt have expertise required to manage

unrelated businesses.

Managers Overly Focused on AcquisitionsManagers lose track of core business by spending so

much effort on acquisitions.

Too LargeLarge bureaucracy reduced innovation & flexibility.


14/16


Attributes of friendly Acquisitions


15/16


Reducing scope of operations.

Selectively divesting or closing non-core businesses.

Leads to greater focus.

Restructuring Activities

Agilient Technologies cutting of itsworkforce by 15,000 jobs

Telus cutting of its workforce by 6,000 jobs

Downscoping

DownsizingWholesale reduction of employees.

Leveraged Buyout (LBO)A party buys a firms entire assets in order to take

the firm private.Forsmann Littles buyout of Dr. Pepper


16/16


Downscoping

Downsizing

LowerPerformance

Reduced

Labour Costs

Loss of

Human Capital

AlternativesShort-Term

Outcomes

Long-Term

Outcomes

Higher RiskHigh Debt

Costs

Leveraged

Buyout

Downsizing

Higher

Performance

ReducedDebt Costs

Emphasis on

StrategicControls

Reduced

Labour Costs

Loss of

Human Capital

LowerPerformanceDownscoping

ReducedDebt Costs

Restructuring and Outcomes

Leveraged

Buyout

Acq & Merger

Documents

Transcript of Acq & Merger