Bilingual Series-Strategic Management

1. Bilingual Series-Strategic Management Chapter 7

2. Acquisition and Restructuring Strategies

3. Mergers and Acquisitions Merger A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage Acquisition A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary Takeover An acquisition where the target firm did not solicitthe bid of the acquiring firm

4. Increased market power Integration difficulties Overcome entry barriers Inadequate evaluation of target Cost of new product development Large or extraordinary debt Increased speed to market Acquisitions Inability to achieve synergy Lower risk compared to developing new products Too much diversification Increased diversification Managers overly focused on acquisitions Avoid excessive competition Too large Reasons for Acquisitions Problems in Achieving Success

5. Increased Market Power Acquisition intended to reduce the competitive balance of the industry Overcome Barriers to Entry Acquisitions overcome costly barriers to entry which may make “start-ups” economically unattractive Lower Cost and Risk of New Product Development Buying established businesses reduces risk of start-up ventures Reasons for Acquisitions Example: British Petroleum’s acquisition of U.S. Amoco Example:Belgian-Dutch Fortis’ acquisition of American Banker’s Insurance Group Example:Sohu.com acquired ChinaRen.com

6. Increased Speed to Market Closely related to Barriers to Entry, allows market entry in a more timely fashion Diversification Quick way to move into businesses when firm currently lacks experience and depth in industry Reshaping Competitive Scope Firms may use acquisitions to restrict its dependence on a single or a few products or markets Reasons for Acquisitions Example:Kraft Food’s acquisition of Boca Burger Example:JiaoDa’s acquisition of Caiyuan Example:Nortel’s acquisition of Bay Networks

7. Integration Difficulties Differing financial and control systems can make integration of firms difficult Inadequate Evaluation of Target “Winners Curse” bid causes acquirer to overpay for firm Large or Extraordinary Debt Costly debt can create onerous burden on cash outflows Problems with Acquisitions Example:Intel’s acquisition of DEC’s semiconductor division Example:Marks and Spencer’s acquisition of Brooks Brothers Example:AgriBioTech’s acquisition of dozens of small seed firms

8. Inability to Achieve Synergy Justifying acquisitions can increase estimate of expected benefits Overly Diversified Acquirer doesn’t have expertise required to manage unrelated businesses Managers Overly Focused on Acquisitions Managers may fail to objectively assess the value of outcomes achieved through the firm’s acquisition strategy Too Large Large bureaucracy (官僚) reduces innovation and flexibility Problems with Acquisitions Example:JiaoDa and Caiyuan Example:GE--prior to selling businesses and refocusing Example:Ford and Jaguar

9. + Complementary Assets or Resources Buying firms with assets that meet current needs to build competitiveness + Friendly Acquisitions Friendly deals make integration go more smoothly + Careful Selection Process Deliberate evaluation and negotiations is more likely to lead to easy integration and building synergies + Maintain Financial Slack (充足的资金) Provide enough additional financial resources so that profitable projects would not be foregone Attributes of Effective Acquisitions

10. + Low-to-Moderate Debt Merged firm maintains financial flexibility + Flexibility Has experience at managing change and is flexible and adaptable + Emphasize Innovation Continue to invest in R&D as part of the firm’s overall strategy Attributes of Effective Acquisitions

11. Downsizing Wholesale reduction of employees Downscoping Selectively divesting or closing non-core businesses Reducing scope of operations Leads to greater focus Restructuring Activities Example:Procter & Gamble’s cutting of its worldwide workforce by 15,000 jobs Example:Disney’s selling of Fairchild Publications

12. Restructuring Activities Leveraged Buyout (LBO) --A party buys a firm’s entire assets in order to take the firm private. --occurs when a corporation’s shareholders are bought by the company’s management and other private investors using borrowed funds (leverage / interests) --hostile takeover can be avoided --senior management decisions that particular divisions do not fit into an overall corporate strategy or must be sold to raise cash, or receipt of an attractive offering price.

13. Short-Term Outcomes Long-Term Outcomes Alternatives Downsizing Downscoping Leveraged Buyout Restructuring and Outcomes

14. Loss of Human Capital Reduced Labor Costs Lower Performance Restructuring and Outcomes Alternatives Short-Term Outcomes Long-Term Outcomes Downsizing

15. Reduced Debt Costs Downscoping Higher Performance Emphasis on Strategic Controls Restructuring and Outcomes Alternatives Short-Term Outcomes Long-Term Outcomes Loss of Human Capital Reduced Labor Costs Downsizing Lower Performance

16. Higher Performance Emphasis on Strategic Controls Leveraged Buyout High Debt Costs Higher Risk Restructuring and Outcomes Alternatives Short-Term Outcomes Long-Term Outcomes Loss of Human Capital Reduced Labor Costs Downsizing Reduced Debt Costs Lower Performance Downscoping