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Sara Villanueva-Alcántara

Evolution in Mergers/Acquisitions and Strategic Alliances in High-Technology Sectors: From Alliances to Mergers. “Seminaire de Recherche en Gestion” (ULG) Liège, 3rd May 2005 Sara Villanueva-Alcántara. Sara Villanueva-Alcántara. ULG – HEC-Liège, 3rd May 2005. OUTLINE.

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Sara Villanueva-Alcántara

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  1. Evolution in Mergers/Acquisitions and Strategic Alliances in High-Technology Sectors: From Alliances to Mergers “Seminaire de Recherche en Gestion” (ULG) Liège, 3rd May 2005 Sara Villanueva-Alcántara Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  2. OUTLINE • Introduction & Data Sources • SA / M&A: • Definitions • Motives • Forms • Competition in the Semiconductor Sector • Patterns in SA /M&A in the Sector • Comparison of SA / M&A’s trends • Conclusions ULG – HEC-Liège, 3rd May 2005 Sara Villanueva Alcántara VISION 26 October 2000 Sara Villanueva Alcántara

  3. Introduction “ Firms perceive the environment and try to shape their endowments in their search for knowledge ” Strategic alliances, mergers and acquisitions are seen as a portfolio of strategic agreements in which firms engage in order to become or remain competitive. Sara Villanueva-Alcántara ULG –HEC-Liège, 3rd May 2005

  4. Introduction DRAMATIC INCREASE IN SA & M&Ac in last decades SA & M&Acs are seen in the literature as main vehicles for technology transfer between companies Motivations for SA & M&Acs formation have changed during the past century M&Acs increasingly used to absorb complementary technological capabilities Sara Villanueva-Alcántara ULG –HEC-Liège, 3rd May 2005

  5. General Trends Number of Total Transactions (SA & M-Acs) Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  6. General Trends M&Acs Value in US $ Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  7. Data SDC Thomson Financial Data Base: • 1835 M&A events (Semiconductor Sector: 1985-2000) • 1933 SA events (Semiconductor Sector: 1985-2000) OSIRIS Company Data Base: • 900 companies that were involved in M&A and/or SA (1985-2000) Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  8. Definitions I Definitions: Strategic Alliance (SA): Increase Value • Competitive Collaboration(Hamel et al, 1989) • From minority equity holding to distribution agreements(Mitchell & Singh, 1992) • Arrangmts. to exchange, share or co-developing products(Gulati, 98) • Co-operative arrangements involving Cross border flows (Parkhe, 93) • Any governance structure involving incomplete contract between separate firms (Gomes Casseres, 1996) • Pooling of firms’ resources to achieve common goals (Hellriegel, 1996) • Voluntary cooperative agreements aimed at achieving competitive advantage (Das et al, 2000) Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  9. Definitions II Definitions: Strategic Alliance (SA): Increase Value • Voluntary arrangements to jointly achieve individual goals • Joint Ventures (JV) • Collaborative Arrangements that do not create new entity • Cross-border & Domestic collaborations SA are voluntary cooperative inter-firm agreements aimed at achieving a competitive advantage for the partners Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  10. Definitions III Definitions: Mergers & Acquisitions (MA): Increase Value • Tool for exploiting capabilities rather than learning (Yamin, 1996) • General expression of control transfer (Ross, 1996) • Combining two companies into a new one (Weston et al, 1997) MA contribute to the corporate renewal process MA aim at increasing the value of the combined companies Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  11. Motives I Motives: Strategic Alliance (SA): • Learning (Daniels, 98; Lei& Slocum, 92; Kogut, 88; Nelson and Winter, 82; Doz, 98; Eisenhardt & Schoonhoven, 96; Hagedoorn, 93) • Lowering costs (Hellriegel, 1996) • Sharing Risks by joint research and exploration (Eisendhardt et al, 96) • Creating unique combination of resources (Contractor and Lorange, 1988) • Geographical strateg. to enter new markets (Hagedoorn, 1993; Doz, 1998) • Erode Competition (Kogut, 1988) • Access new product market (Daniels, 1998) • Strategic positioning to lead an industry(Doz, 1998) • Legitimation(Eisenhardt & Schoonhoven, 96) • Isomorphism(Gulati, 95) Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  12. Motives II Motives: Merger & Acquisition (MA): • Learning (Ashkenas et al, 1998) • Value Capture (Haspeslagh & Jemison, 1991) • Value Creation (Haspeslagh & Jemison, 91; Trautwein, 90; Weston et al, 98) • Diversification (Weston et al, 1998) • Managerial (Weston et al, 98; Mueller, 95) • Increase Market Power (Weston et al, 98) Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  13. Forms I Forms: Strategic Alliance (SA): Equity Agreements, (Gulati, 98; Hagedoorn & Narula, 99; Das et al, 00, Tamin, 96; Hellriegel, 96) High Degree of Dependency  Creation of New Entity Joint Ventures • Non-equity Agreements (Duysters & Hagedoorn, 00; Hagedoorn & Narula, 99 • & 94; Mowery et al, 96) • Flexibility is Needed  Low Level of Integration • Licensing, Cross-licensing, Joint research = SA Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  14. Forms II Forms: Mergers & Acquisitions (MA): Related MA, (Hitt et al, 1998; Lubatkin, 1987; Montgomery & Wilson, 1986; Singh & Montgomery, 1987; Hagedoorn & Duysters, 2002) e.g: After Buy-Seller Relation (Hagedoorn 2000) Vertical Integration(Weston, 1997; Ross, 1996; Brealy, 1996) • Unrelated MA (Duysters & Hagedoorn, 2000; Hagedoorn & Narula, 1999 & 1994; • Mowery et al, 1996) • Firms Non Related in terms of Product-Market (creation of largely diversified companies) Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  15. Semiconductor Sector I Reasons for choosing the semiconductor: Tension ChangeStability Technological Change Change in products Stability of manufacturing equipments Technological Change in Design and Products: Economies of Scope Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  16. Semiconductor Sector II Semiconductor Sector Cycles: • Peculiarity of the Sector: Price declines joined by parallel increase of chip’s performance • Reason: Excess demand and supply cycles of the sector Time span between R&D to market of the final chip creates excess demand and supply cycles Fierce Competition reflected in high R&D expenditures High R&D => Fast Obsolescence of Existing products Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  17. Competition Competition in the Industry I: • MAINLY: • Price declines, • intense R&D expenditure and • reduction of lead times • Manufacturing: • Complexity: High fix costs • Economies of Scope: in order to reduce costs • “Learning curve”pricing strategy: Results of a process of cumulative learning Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  18. Competition Competition in the Industry II: • Design & Process: • Due to Economies of Scope => division of manufacturing and design • Manufacturing = Foundry(exposed to investment cycle of sector but can spread risks) • Design: Fabless(heavy investments in R&D) • Role of Small & Large Firms: • Initiallylarge firms are at the heart of the industry(e.g. Bell Labs) • Those large firms enjoyed Government support(largest semicond demand was public) • Small firms entered when government demand weakened. • Fast movers responding to technology change. INNOVATIVE • Have got no burden on former existing technologies • Maintain the competitive tension in the sector • BUT…Small firms face difficulties due to: +Lack financial resources +Narrow networks… SMALL Firms SHOULD: • In order to maintain position: keep up with technology path and innovate Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  19. SA Patterns “Strategic Alliances are voluntary cooperative inter-firm agreements aimed at achieving a competitive advantage for the partners” MODES R&D projects / Manufacturing set ups Unrelated Industries or Technologies Cross-Border SA / Standard Settings Equity Agreements (avoid opportunism) MOTIVE Spread and Reduce Costs Specialize Avoid Competition Secure Vertical and Horizontal Linkages FORMS Equity (JV) / Non-Equity (Joint Agreements) Related / Unrelated Industries R&D Agreements Manufacturing Agreem. Cross-Border Agreem. Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  20. SA: Equity Agreements Equity Agreements in Semiconductors Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  21. SA: Related vs. Unrelated Unrelated Industry Agreements Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  22. SA: R&D Agreements R&D Agreements Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  23. SA: Manufacturing Agreem. Manufacturing Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  24. SA: Cross-Border Cross-Border Agreements Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  25. MA Patterns “Mergers and Acquisitions aim at increasing the value of the combined companies” Semiconductor MAcs: MOTIVE Capturing Value Create Value (synergy) Diversification Market Power (in combination) FORMS Related / Unrelated Industries Cross-Border Agreem. Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  26. MA: Related vs. Unrelated Unrelated Industries M&Acs Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  27. MA: Cross-Border Cross-Border M&Acs Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  28. Semiconductor SA - MAs High R&D costs Capital Intensive SectorExpensive equipment & scientific training Short Product Life Dangers = Obsolescence Vs. Overcapacity Sector not concentrated Worldwide Economies of ScopeAccumulation of Knowledge is imperative SA and M&Acs are a mean to acquire critical knowledge & resources Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  29. Comparison SA/MA in Sector Semiconductor’s SA-MACs trends Source: Thomson Financial Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

  30. CONCLUSIONS SA & M&Acs are seen as critical in the evolution of the sector during the last two decades. The trends have evolved together with the sector’s history Motivation for SA & M&Acs formation in the sector has also changed together with the globalization of the economy and its cycles Further Research: Study of possible links between SA partners becoming MAcs fellows based on evidence shown. Sara Villanueva-Alcántara ULG – HEC-Liège, 3rd May 2005

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