Strategic management

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Published on December 16, 2009

Author: jiwant

Source: authorstream.com

Acquisitions and Mergers : Acquisitions and Mergers Assignment #1:PPT in learning Jiwant Kumar PG08-035 502:Strategic Management Mergers, Acquisitions and Takeovers : Mergers, Acquisitions and Takeovers Mergers: is a strategy through which two firm agree to integrate their operation on a relatively co-equal basis. Acquisitions : is a strategy through which one firm buys a controlling interest in another firm with the intent of making the acquired firm a subsidiary business within its own portfolio Takeovers: is a special type of an acquisition strategy wherein the target firm does not solicit the acquiring firm 12/16/2009 Jiwant Kumar 2 Slide 3: 12/16/2009 Jiwant Kumar 3 Increased Market Power : Increased Market Power Factors increasing market power when a firm is able to sell its goods or services above competitive levels or when the costs of its primary or support activities are below those of its competitors usually is derived from the size of the firm and its resources and capabilities to compete Market power is increased by horizontal acquisitions vertical acquisitions related acquisitions 12/16/2009 jiwant kumar 4 Slide 5: Horizontal Acquisition: the acquisition of competitor . Vertical: firm acquiring a supplier or distributor of its goods and services. Firm is known as vertically integrated. 3. Related Acquisition : the acquisition of related industry is known as related acquisition. 12/16/2009 jiwant kumar 5 Overcoming entry barriers : Overcoming entry barriers Barriers to entry include economies of scale in established competitors differentiated products by competitors enduring relationships with customers that create product loyalties with competitors acquisition of an established company may be more effective than entering the market as a competitor offering an unfamiliar good or service that is unfamiliar to current buyers Cross-border acquisition 12/16/2009 jiwant kumar 6 Cost of New Product Development and Increased Speed to Market : Cost of New Product Development and Increased Speed to Market Significant investments of a firm’s resources are required to develop new products internally introduce new products into the marketplace Acquisition of a competitor may result in lower risk compared to developing new products increased diversification reshaping the firm’s competitive scope learning and developing new capabilities faster market entry rapid access to new capabilities 12/16/2009 Jiwant kumar 7 Low risk compared to developing new product : Low risk compared to developing new product An acquisition’s outcomes can be estimated more easily and accurately compared to the outcomes of an internal product development process Therefore managers may view acquisitions as lowering risk 12/16/2009 Jiwant kumar 8 Increased diversification : Increased diversification It may be easier to develop and introduce new products in markets currently served by the firm It may be difficult to develop new products for markets in which a firm lacks experience it is uncommon for a firm to develop new products internally to diversify its product lines acquisitions are the quickest and easiest way to diversify a firm and change its portfolio of businesses 12/16/2009 Jiwant kumar 9 Reshaping the firms competitive scope : Reshaping the firms competitive scope Firms may use acquisitions to reduce their dependence on one or more products or markets. Reducing a company’s dependence on specific markets alters the firm’s competitive scope. 12/16/2009 Jiwant kumar 10 Learning and developing new capabilities : Learning and developing new capabilities Acquisitions may gain capabilities that the firm does not possess Acquisitions may be used to acquire a special technological capability broaden a firm’s knowledge base reduce inertia 12/16/2009 Jiwant kumar 11 Problems in Acquisition : Problems in Acquisition 12/16/2009 Jiwant kumar 12 Integration difficulties. Inadequate evaluation of target. Large or extraordinary debt. Inability to achieve synergy. Too much diversification. Managers overly focused on acquisition. Too large. Integration difficulties : Integration difficulties Integration challenges include melding two disparate corporate cultures linking different financial and control systems building effective working relationships (particularly when management styles differ) resolving problems regarding the status of the newly acquired firm’s executives loss of key personnel weakens the acquired firm’s capabilities and reduces its value 12/16/2009 Jiwant kumar 13 Inadequate evaluation of target : Inadequate evaluation of target Evaluation requires that hundreds of issues be closely examined, including financing for the intended transaction differences in cultures between the acquiring and target firm tax consequences of the transaction actions that would be necessary to successfully meld the two workforces Ineffective due-diligence process may result in paying excessive premium for the target company 12/16/2009 Jiwant kumar 14 Large extraordinary debt : Large extraordinary debt Firm may take on significant debt to acquire a company 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 12/16/2009 Jiwant kumar 15 Inability to achieve synergy : Inability to achieve synergy Synergy exists when assets are worth more when used in conjunction with each other than when they are used separately Firms experience transaction costs (e.g., legal fees) when they use acquisition strategies to create synergy Firms tend to underestimate indirect costs of integration when evaluating a potential acquisition 12/16/2009 Jiwant kumar 16 Too much diversification : Too much diversification Diversified firms must process more information of greater diversity Scope created by diversification may cause managers to rely too much on financial rather than strategic controls to evaluate business units’ performances Acquisitions may become substitutes for innovation 12/16/2009 Jiwant kumar 17 Managers overly focused on acquisition : Managers overly focused on acquisition Managers in target firms may operate in a state of virtual suspended animation during an acquisition Executives may become hesitant to make decisions with long-term consequences until negotiations have been completed Acquisition process can create a short-term perspective and a greater aversion to risk among top-level executives in a target firm 12/16/2009 Jiwant kumar 18 Too large : Too large 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 12/16/2009 Jiwant kumar 19 Attributes of successful Acquisition : Attributes of successful Acquisition 12/16/2009 Jiwant kumar 20 Slide 21: 12/16/2009 Jiwant kumar 21 Restructuring : Restructuring Restructuring : is a strategy through which a firm changes its set of businesses or financial structure. restructuring Activities: Downsizing. Down scoping. Management buyout. 12/16/2009 Jiwant kumar 22 Slide 23: 12/16/2009 Jiwant kumar 23 Downsizing Wholesale reduction of employees Down scoping Selectively divesting or closing non-core businesses Reducing scope of operations Leads to greater focus Leveraged Buyout (LBO) A party buys a firm’s entire assets in order to take the firm private. Restructuring outcome : Restructuring outcome 12/16/2009 Jiwant kumar 24 Short term Slide 25: 12/16/2009 Jiwant kumar 25 Long term Slide 26: Thank you Jiwant Kumar PG08-o35 Assignment #1:PPT in Learning

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