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Information about corp

Published on November 16, 2007

Author: Natalia


Today’s News:  Today’s News Pepsi’s challenges Spun-off restaurants Acquired Tropicana Pepsi Bottling IPO Disney -- Retail stores Baby merchandize White goods Paint AT&T Spin-off or sell Consumer Long Distance unit Maxtor acquires Quantum HDD unit Corporate Strategy :  Corporate Strategy Q: What businesses are we in? How did we get there? Single Business Product Line Expansion Geographic Expansion/ Vertical Integration Diversification Related / Unrelated Diversification and Poker:  Diversification and Poker 8 8 J 3 K 7 Q 10 2 4 3 4 7 3 J Why Diversify??:  Why Diversify?? 1994 Q1 Q2 Q3 Q4 Division Sales ($) Industry Growth (%) 1993 1994 1995 1996 1997 1998 Benefits of Diversification:  Benefits of Diversification Reduce earnings volatility Minimize risk Move firm into attractive industries Prolong “life” of firm Improve long-term performance Capture synergies and strategic “fit” between businesses Steer corporate resources Types of Diversification:  Types of Diversification Vertical Horizontal Related Unrelated Global Evaluation of Diversified Firms:  Evaluation of Diversified Firms Identify present corporate strategy extent and type of diversification geographic scope new acquisitions recent divestitures mode of new business entry Evaluation of Diversified Firms:  Evaluation of Diversified Firms Reveal contextual position of corporate portfolio BCG Growth-share Matrix Industry Growth Rate Hi Lo Relative Market Share 1.0 < 1.0 > 1.0 Slide9:  Evaluation of Diversified Firms Reveal competitive position of corporate portfolio - G.E. Industry attractiveness/business strength matrix Industry Long Term Attractiveness H M L Firm’s Competitive Position Str. Avg. Weak Diversified Inc.:  Diversified Inc. HQ Bus. 1 Bus. 2 Bus. 3 $ $ $ Growth Size Remote Env. Growth Size Remote Env. Growth Size Remote Env. Entering New Businesses:  Entering New Businesses WHY? Does business fit? Financially Strategically Culturally If not in this business today, would we want to get into it now? HOW? Acquisition Internal start-up Joint ventures Why M&A Activity?:  Why M&A Activity? Intensifying competition Global markets Growth in new industries NOTE: 20% of all-time corporate mergers have occurred within last 18 months Justifications:  Justifications Attractiveness test Industry factors Core competencies Strategic position Cost of entry test Buy outstanding shares Cash Contributions to merger or JV Better off test Synergies, econ. of scale/scope Consolidation of resources, activities Competitive advantage? Why MBC’s “Should” Outperform SBC’s:  Why MBC’s “Should” Outperform SBC’s Economies of Scope Intangible assets - brand Consolidate operations Efficient Resource Allocation MBC as “internal” capital market Increased Size Lower cost of capital Increased market power Why MBC’s Actually Underperform SBCs:  Why MBC’s Actually Underperform SBCs Why does stock price of acquirer always go down? Diseconomies of Scope Leadership - bureaucracy Capital Allocation Democratic process Cross-subsidization (e.g., AT&T) Misaligned Incentives Too short-term Underdeveloped Corporate Strategy International Diversification:  International Diversification WHY? slow domestic growth (earnings risk?) intense domestic rivalry no overseas competition intense overseas competition HOW? Exporting Franchising Joint ventures Wholly-owned subsidiaries Greenfield (internal development) Mergers & Acquisitions Alternative Corporate Strategies:  Alternative Corporate Strategies Portfolio “juggling” ... Evolutionary Approach Corporate Transformation Sudden Redefinition Portfolio Managers:  Portfolio Managers Turnaround restore competitiveness to poor performers New advantages created within portfolio Retrenchment narrow scope of portfolio “stick to your knitting” Restructuring add new businesses / divest poor performers Evolutionary Approach: Leveraging Competence:  Evolutionary Approach: Leveraging Competence Performance culture (3M, ABB) Business system replicator (Gillette) Capability leverager (Nike) Valuator (Berkshire Hathaway) Inventor (H-P, J&J) Synergy capturer (Kraft-Genl. Foods) Cost squeezer (Sunbeam) Disney: Capability Bundling:  Disney: Capability Bundling Films Videos Network TV Cable TV Hotels Cruise lines Merchandise Brand licensing NEW … Retail Stores Toy Story TV Show Merchandise Food Items Theme Park Corp. Transformation:  Corp. Transformation Choosing new businesses Planned Surprises Change business portfolio (Monsanto) Change global portfolio (CitiBank) Capability bundling (Disney) Industry consolidation (Chrysler) Total Return 1994 S&P MTC Chemicals (18%) Biotech (38%) Transformation:  Transformation Total Return 1993 S&P Nokia Motorola Eriksson Nokia 1989: Diversified electrical conglomerate 1993: 87% telecom focus Sudden Redefinition:  Sudden Redefinition Competitive/performance crisis Massive immediate corporate portfolio change Deregulation Patents Foreign competition M&A in same/related industries

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