acq & merger
TRANSCRIPT
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8-1 2006 by Nelson, a division of Thomson Canada Limited.
Chapter 8
Acquisition and Restructuring
Strategies
Chapter Eight
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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
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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.
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Merger:
A transaction where two firms agree to
integrate their operations on a relatively co-equal basis.
Mergers and Acquisitions
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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
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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.
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Reasons for Acquisitions
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Pharmaceutical firms access new products through
acquisitions of other drug manufacturers
Alcans purchase of Pechiney (Ch. 1 opening case)
Reasons for Acquisitions
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
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Reasons for Acquisitions
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
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Reasons for Acquisitions
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.
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Problems With Acquisitions
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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.
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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.
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Attributes of friendly Acquisitions
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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
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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