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  • 1. MBA Programme 2007 Period 3 – May/June M&As, Alliances and Corporate Strategy (MAACS) Professor: Laurence Capron Assistant: Carole Guillard laurence.capron@insead.edu carole.guillard@insead.edu EW1.10 EW2.14 Ext 4468 Ext 4494 Course Description This course is a natural follow on to your strategy core course. It explores the various modes of corporate development available to managers to achieve firm growth, including mergers, acquisitions, strategic alliances, joint ventures and divestiture. The objectives of the course are (1) to give you a set of tools to facilitate the selection of an appropriate strategy for corporate development, (2) to provide insight into the key success factors in creating and managing inter firm alliances and acquisitions, and (3) to provide a comprehensive framework for executing M&A from initiation to implementation. There are three modules in this course. The first module introduces the course and lays out the basic ideas pertaining to corporate development and management of multi-business firm. The next module explores the key challenges in managing corporate acquisitions, attempting to understand the key success factors in evaluating and integrating acquisitions. The last module comprises a discussion of key success factors in strategic alliances. Who should take this course? The elective covers the overall process of acquisition and alliance management, and as such integrates strategic, financial and organizational issues. It is complementary to financial courses on valuation and corporate restructuring. It should normally come after students have been exposed to strategy, either through the core course or through prior experience in consulting or other jobs exposed to strategy or M&A or alliance issues. A Few Simple Rules If you choose to attend this course, you commit to following these rules: • Drop deadline is before the second session. 1
  • 2. • Punctuality is key. • Laptops and cell phones are off. • No food in the classroom. • Bring your nametag for each session. • Respect the seating plan throughout the course (keep the seat you take in Class 2). • You will not receive credit for the course if you miss more than three sessions. Missing class hurts your participation grade. • You cannot swap sessions unless you have a valid reason that you bring to my attention before class starts. • Work groups will be formed by the professor. A short note on proper citations To most of you this will be probably self-evident, but I want to make sure that we all understand: Copying paragraphs from sources (magazines, newspaper articles, analyst reports, etc) without properly citing them is a serious offense. Properly citing means that if you copy word for word, you must mark this by enclosing the copied text in quotation marks (“ ”) and citing the source. Even if you don’t copy word for word but you take someone else’s idea, you have to indicate in a citation the source of that idea. This citation has to follow the idea directly (attach a footnote). At the end, you should list all sources you have cited in the text. Evaluation Group Case Write-ups Due on Weighting (1) Cisco Via e-mail one day before Class 4 10 16/5/07 by 1:00 pm (2) Acquisition Wave in Fine Chemical Industry Via e-mail one day before Class 6 10 21/5/07 by 1:00 pm (3) Crown Cork & Seal/Carnaud Metalbox Via e-mail one day before Class 8 10 28/5/07 by 1:00 pm (4) Microsoft and Sendit (A&B) Via e-mail three days before Class 11 10 4/6/07 by 1:00 pm (5) Hero Honda Motors Via e-mail one day before Class 15 10 20/6/07 by 1:00 pm Individual Class Participation 23 Individual Poll Participation (9 polls *3 points) 27 Total 100 !!! All case write-ups should be sent to: carole.guillard@insead.edu Individual Class Participation Class participation covers your own contribution to classroom learning. For a typical session, participants are required to read the case and the readings in the course pack. Attendance, quality of participation, respect for other participants’ points of view, and listening attitude are key elements of a high participation grade. 2
  • 3. Individual Poll Participation Poll participation covers your own contribution to polls that are posted on the course website. You are required to participate to on-line polls before the class starts. For a typical poll, you will be asked to express your opinion in a few sentences about the case. The poll closes at 7:00 am on the morning of the class day. I will invite participants to present their point of view reported in the online survey during our class discussion. Group Case Write-ups and Group Formation Group case write-ups are 2-3 page long (single-spaced). You can insert up to three appendixes. I will form groups of 3 to 4 members who will work during the course on case write-ups. All members of the group are from the same section. Grade Distributions I do not apply a forced curve in a mechanical fashion. If a classmate does good work, that will not automatically reduce your chances of getting a good grade. However, the course is sufficiently challenging that top grades will not be easy to come by. Course materials. There is no textbook required. All necessary items are available in the course pack. You will find a list of references at the end of this document that you can use to deepen your understanding of some topics covered in class. Also note that overheads will be posted after each class on the website set up for this class. About your instructor Laurence Capron is Associate Professor of Strategy at INSEAD. She joined INSEAD in 1997 after earning her PhD in Strategy from HEC Paris. She teaches in PhD, MBA, Executive MBA, and Executive Education programs. She has taught her course on M&As, Alliances and Corporate Strategy both at INSEAD and Wharton. She was Visiting Associate Professor of Strategy at Wharton (2005-06) and Visiting Scholar at Kellogg (2004-05) and Michigan (1993-94). Her research on M&As appears in leading academic journals (Academy of Management Review, Strategic Management Journal, Journal of Marketing, Industrial and Corporate Change) and has received media coverage (The Financial Times, The Economist, European Business Forum, Les Echos). Laurence received awards for her research, including Academy of Management Best Paper Award, McKinsey-Strategic Management Society Best Paper Award (runner-up), HEC Paris Foundation Best Dissertation Award. She sits on the Editorial Board of the Strategic Management Journal, the leading academic journal in the field of strategy. She has been elected as a Member of the Executive Committee of Academy of Management's Business Policy and Strategy division - the largest professional association of strategic management academics and practitioners, with over 4,700 members worldwide (2006-08). 3
  • 4. Course Overview Please note that this syllabus is subject to change with prior announcements. Class Date Topic Pedagogical Tools and Deliverables Module 1 — Diversification and the Role of Corporate Parent 1 8/5 Related diversification Case: GPS-Vision Express- Poll # 1 2 10/5 Conglomerate diversification Case : Hanson Trust- Poll # 2 3 15/5 Conglomerate diversification Case : Tyco- Poll # 3 4 17/5 Acquisitive growth Case : Cisco- Group write-up # 1 5 18/5 Diversification & Corporate Advantage Lecture I Module 2 — Managing M&As 6 22/5 Merger waves Case: Acquisition Wave in Chemical Industry Group write-up # 2 7 24/5 Vertical integration Case: MOL: The TVK Acquisition Poll # 4 8 29/5 Synergy evaluation Case: Crown Cork & Seal Group write-up # 3 9 31/5 Valuing an entrepreneurial firm Case: Cerent Technologies Poll # 5 10 5/6 Managing post-merger integration Case: Nestlé/Rowntree (A+B) Poll # 6 11 7/6 Integrating high-tech firms Case: Microsoft/Sendit (C) Poll # 7 (+ Group write-up # 4 on Microsoft/Sendit, A&B) 12 12/6 Creating Value in M&As Lecture II Module 3 — Managing Alternative Modes of External Growth: Alliances 13 14/6 Entering alliances with competitors Case: Amazon-Toys’R’Us Poll # 8 14 19/6 Managing alliance dynamics Case: Matra Automobile Poll # 9 15 21/6 Entering foreign market through Case: Hero Honda Motors Group write-up # 5 alliances 16 26/6 Managing Strategic Alliances Lecture III 4
  • 5. Session Outline Module 1 - Introduction : M&As, Diversification and the Role of Corporate Parent 8/5 Class 1 - Related Diversification Case GPS-Vision Express (A) (IMD, ECCH IMD-3-0861, v. 20.02.2003) Study Questions • Why do GPS managers want to diversify? Do you think these reasons are legitimate? What is your perspective as a shareholder? As a manager? • What are their different growth options? What is their vision of their core competencies for each option? • Is Vision Express an attractive option for GPS? What can GPS add to Vision Express? Develop your arguments by using Markides’s reading. • What do you think of Lazard’s forecasts? Readings • Markides, C. 1997. To Diversify or Not to Diversify. Harvard Business Review, November- December. • Porter, Michael. 1987. From Competitive Advantage to Corporate Strategy. Harvard Business Review, May–June. On-line poll # 1 – see Course Website Poll Question: Should GPS buy Vision Express? 10/5 Class 2 - Conglomerate Diversification Case Hanson PLC (INSEAD, 1992) Study Questions • What is Brealey and Myers’s view on conglomerates? What is Whittington’s point of view on conglomerates? Which view do you share? • How do you explain Hanson’s success — before its break-up? What type of value does Hanson as a parent add to its businesses? • How sustainable is Hanson’s corporate strategy? If so, what does it depend on? • Should Hanson bid for ICI? Readings • Brealey, R., and S. Myers. 2000. Control, Governance, and Financial Architecture, in Principles of Corporate Finance, 6th ed. McGraw-Hill. • Whittington, R. 2000. In Praise of the Evergreen Conglomerate, in Financial Times Mastering Strategy: The Complete MBA Companion in Strategy. On-line poll # 2 – see Course Website Poll Question: Should Hanson bid for ICI? 5
  • 6. 15/5 Class 3 - Conglomerate Diversification (Cont.) Case Tyco International (A) (HBS, 9-798-061, rev. Feb.27, 2001) Study Questions • How do you explain Tyco’s success? – please stay within the time context of the case. • What are the mechanisms that Tyco’s top management use to make sure that this conglomerate adds value? • What are the similarities and differences between Tyco and Hanson ‘s corporate strategy? Do they involve different level of risks? Reading • Goold, M.; A. Campbell; and M. Alexander. 1994. How Parents Create Value, in Corporate- Level Strategy: Creating Value in the Multi-business Company, Chapter 5. John Wiley and Sons. On-line poll # 3 – see Course Website Poll Question: Is Tyco’s corporate strategy sustainable? 17/5 Class 4 - Acquisitive growth Case Cisco: Early if not elegant (A) (Darden UVA BP-0446, 2003) Study Questions • What is Cisco corporate strategy? What type of value does Cisco add as a parent add to its businesses? See Goold and al’s reading. • What is unique in the way Cisco manage its acquisitions? • How sustainable is Cisco’s corporate strategy? • Does Scientific Atlanta fit within Cisco’s portfolio? Can Cisco add value as a parent to Scientific Atlanta? – see press clipping and audio link on website – Readings • Chaudhuri, Saikat and B. Tabrizi, 1999. Capturing the Real Value in High-Tech Acquisitions, Harvard Business Review, September-October 1999. • Mitchell, Will, and Laurence Capron. 2002. Managing Acquisitions to Change and Survive. European Business Forum. Group Case Write-up # 1 Answer the study questions. To be handed one day before class by 1:00 pm. 2-3 pages max (single-spaced) + up to 3 appendixes 18/5 Class 5 - Lecture on Diversification and Corporate Advantage Readings • Goold, Michael and Kathleen Luchs. 1993. Why diversify? Four decades of management thinking, Academy of Management Executive, 7(3). 6
  • 7. • Collis, David and Cynthia Montgomery. 1998. Creating Corporate Advantage. Harvard Business Review. May-June • Prahalad, C.K and Gary Hamel. 1990. The core competence of the corporation. Harvard Business Review. May-June Module 2 - Managing M&As 22/5 Class 6 - Merger Waves Case Acquisition Wave in Fine Chemical Industry: Clariant-BTP Acquisition (A) (INSEAD 2006) Study Questions • Does Clariant-BTP deal make strategic sense? • Hoes does the price for BTP compare with previous deals? • Should Clariant bid for BTP at the proposed price? Reading • Haunschild, Pamela R., Alison Davis-Blake, and Mark Fichman, 1994. Managerial Overcommitment in Corporate Acquisition Processes. Organization Science, November. Group Case Write-up # 2 Answer the study questions. To be handed one day before class by 1:00 pm. 2-3 pages max (single-spaced) + up to 3 appendixes 24/5 Class 7 - Vertical integration Case MOL: The TVK Acquisition (INSEAD, 06/2004-5219) Study Questions • What is the industry structure of the oil industry? Do a Porter’s 5 forces analysis? • How is the situation different from: - That of non-landlocked countries? - That of western economies? • Use the framework by Stuckey and White to assess the idea of vertical integration with TVK. Consider: - Asset specificity - Transaction frequency • How valuable is TVK as an asset? Is it worth its price? • What are the alternative investments for MOL? Is MOL’s core strategy focusing on regional retail expansion in conflict with the TVK acquisition? • Should MOL take control of TVK? Reading • Stuckey, John and David White. 1993. When and when not to vertically integrate. Sloan Management Review. Spring. 7
  • 8. On-line poll # 4 – see Course Website Poll Question: Should MOL take control of TVK? 29/5 Class 8 - Synergy Evaluation Case Crown Cork and Seal/Carnaud Metalbox (HBS, 9-296-019, rev. Sept 2, 2003) Study Questions • Should CCS try to extend its global reach by acquiring CMB? Does the deal make strategic sense? • How much should CCS pay for CMB - The valuation spreadsheet is posted on the course website. - What is the standalone value of Carnaud MetalBox (value in Ffr./share)? - How aggressive does CC&S have to be in its cost synergy assumptions to at least recoup its premium (corresponding to nil value creation for CC&S)? - How aggressive does CC&S have to be in its cost synergies assumptions to capture circa $ 500 million for its shareholders (assuming that it pays 225 Ffr /CMB share)? • What does it take for an acquirer to gain abnormal returns (see Barney’s and Capron and Pistre’s readings). Does CC&S have unique skills to bring compared to potential competing bidders in its industry? Readings • A note on “Valuation Techniques” (Stanford University Note, S-E-53). • Barney, Jay. 1988. Returns to Bidding Firms in Mergers and Acquisitions: Reconsidering the Relatedness Hypothesis. Strategic Management Journal 9: 71–78. • Capron, Laurence and Nathalie Pistre. 2002. When Do Acquirers Earn Abnormal Returns? Strategic Management Journal 23: 781–794. • Capron, Laurence. 2000. Horizontal Acquisitions: the Benefits and Risk to Long Term Performance. Financial Times Mastering Strategy: The Complete MBA Companion in Strategy, 197-204, Pearson Education Limited, London. Group Case Write-up # 3 Answer the study questions. To be handed one day before class by 1:00 pm. 2-3 pages max (single-spaced) + up to 3 appendixes- Please insert you valuation spreadsheets in the main document. 31/5 Class 9 - Valuing an entrepreneurial firm Case Cerent Corp. (Stanford University, HBSP E83, April 2000) Study questions • What are the expected benefits of the deal between Cisco and Cerent? • Who has the bargaining power in the negotiation? • Should Cerent pursue its IPO instead of being acquired by Cisco? • How much is Cerent worth? Readings 8
  • 9. • Timmons, J.A. 2004. The harvest and beyond. Chapter 19. in New Venture Creation, Irwin McGraw-Hill. On-line poll # 5 – see Course Website Poll Question: How much is Cerent worth? Send your write-up on Microsoft-Sendit (A&B)- See assignment questions for Cases A & B below (Class 11) Via e-mail three days before Class 11 4/6/07 by 1:00 pm 5/6 Class 10 - Managing post-merger integration Case Nestlé-Rowntree (A+B) (IMD, ECCH IMD-3-0520, v. 17.12.2002) Study Questions • What is the structure of the world chocolate industry? Is it a global industry? • Why has Rowntree emerged as a takeover target? • Can the Nestlé-Rowntree combination create value? • What are the most important negotiating points for the second half of the 8 June meeting? • Use Haspeslagh and Jemison’s typology to decide which structure makes sense for integrating Nestlé and Rowntree. Readings • Haspeslagh, Philippe, and David Jemison. 1991. Understanding Different Integration Approaches. In Managing Acquisitions: Creating Value Through Corporate Renewal, Chapter 8. The Free Press. • Marks, M.L., and P.H. Mirvis. 2001. Making Mergers and Acquisitions Work: Strategic and Psychological Preparation. Academy of Management Executive 15(2): 80–94. On-line poll # 6 – see Course Website Poll Question: Which integration approach should Nestlé use to integrate Rowntree? (use Haspeslagh and Jemison's reading) ! Microsoft’s Acquisition of Sendit (C): the integration challenge case will be distributed in class 10. 7/6 Class 11 - Integrating high-tech firms Cases Microsoft’s Acquisition of Sendit (A, B & C) (INSEAD, 02/2003-5063) Case A Microsoft and Sendit (A): Strategic Partners Case B Microsoft’s Acquisition of Sendit (B): the Valuation Dilemna Case C Microsoft’s Acquisition of Sendit (C): the integration challenge (to be distributed in class 10) Readings 9
  • 10. • Reuer, Jeffrey. 2000. Collaborative strategy: the logic of alliances. Mastering Strategy, FT Prentice Hall. • Puranam, Phanish, Singh, Harbir and Maurizio Zollo. 2003. A bird in the hand or two in the bush? Integration trade-offs in technology-grafting acquisitions. European Management Journal. 21(2): 179-184. Group Case Write-up # 4 To be handed three days before class by 1:00 pm. 2-3 pages max (single-spaced) + up to 3 appendixes Answer the following study questions: • How attractive is Sendit for Microsoft? • What would be the most appropriate form of cooperation/combination between Microsoft and Sendit? – Use Reuer’s framework to develop your arguments • How much is Sendit worth? Please estimate the following values (US$ millions): a- Standalone value b- Value to Microsoft c- First offer price d- Walk-away price. On-line poll # 7 – see Course Website Poll Question: Which integration approach should Microsoft use to integrate Sendit? (use Haspeslagh and Jemison's reading) 12/6 Class 12 - Lecture: Value Creation in M&As Readings • Bower, Joseph. 2001. Not All M&As Are Alike - and That Matters, Harvard Business Review, 93-101 • Ashkenas, Ronald; Lawrence DeMonaco; and Suzanne Francis. 1998. Making the Deal Real: How GE Capital Integrates Acquisitions. Harvard Business Review, January. • Capron, Laurence, and Karen Schnatterly. 2005. How M&As Can Lead to Governance Failure. Financial Times, Mastering Corporate Governance Series, June 3. • Capron, Laurence and Mauro Guillen. 2006. Fighting economic nationalism in deals, Financial Times, October 13th. Module 3 - Managing Alternative Modes of External Growth: Alliances 14/6 Class 13 - Entering Alliances with Competitors Case The Amazon.com-Toys’R’Us Alliance (HEC Paris-Duke-Babson, 305-509-1, 2005) Study Questions • What is the rationale behind The Amazon.com-Toys’R’Us Alliance? Use Dussauge and Garrette reading to classify the nature of this alliance (see reading). 10
  • 11. • What is the optimal organization of tasks along the value chain –i.e. 1) toy selection and supplier relationships; 2) web site design; 3) brand name management; 4) customer base management; 5) logistics; 6) policy return? In others word, to which partner would you assign the different tasks? • What is the likely reaction of each partner to the way you have distributed the different tasks? • Do you foresee other points of contention between the two partners? Reading • Dussauge, Pierre, and Bernard Garrette. 1999. The Main Type of Alliance. In Cooperative Strategy: Competing Successfully Through Strategic Alliances, Chapter 4. John Wiley and Sons. On-line poll # 8 – see Course Website Poll Question: Should Toy’s R’Us enter an alliance with Amazon? 19/6 Class 14 - Managing Alliance Dynamics Case Matra Automobile (HEC Paris, SPE 672-K-A 09-02) Study Questions • Why was the Espace such a success in the 1990s? Use Dussauge and Garrette’s reading to classify the nature of this alliance. • How did the Espace’s profitability evolve over time, both for Renault and for Matra? • Why did Renault decide to renew the Matra alliance for the Espace II and Espace III, before breaking it for the Espace IV? • What are the prospects of success for the Avantime and the m72? Readings • Hamel, Gary; Yves Doz; and C.K. Prahalad. 1989. Collaborate with Your Competitors and Win. Harvard Business Review 67(1), January-February. On-line poll # 9– see Course Website Poll Question: Did it make sense for Renault to produce Espace IV without Matra? 21/6 Class 15 - Lecture: Managing Strategic Alliances Case Hero Honda Motors (India) Ltd: Is it Honda that made it a Hero? (Thunderbird, 2003) Study Questions • Why did each party enter into the strategic alliance? How did it fit into their strategies? • Were the parties’ objectives compatible? Why? Why not? • Should (could) the alliance have been managed differently from Hero’s perspective? How? • What recommendations would you make to Brijmohan Munjal, Chairman of Hero Honda Motors to proceed from 2003 forward? Readings • Campbell Elise and Jeffrey Reuer. 2001. International alliance negotiations: Legal Issues for General Managers. Business Horizons. January-February. 11
  • 12. • Mitchell, Will. 2000. Alliances: Achieving Long-Term Value and Short-Term Goals. Financial Times Mastering Strategy: The Complete MBA Companion in Strategy. Reread • Prahalad, C.K and Gary Hamel. 1990. The core competence of the corporation. Harvard Business Review. May-June Group Case Write-up # 5 Answer the study questions. To be handed one day before class by 1:00 pm. 2-3 pages max (single-spaced) + up to 3 appendixes- 26/6 Class 16 - Lecture: Managing Strategic Alliances Readings • Capron, Laurence, Will Mitchell and Joanne Oxley. 2000. Recreating the company: Four Contexts for Change, in Financial Times Mastering Strategy: The Complete MBA Companion in Strategy. • Doz, Yves, and Gary Hamel. 1998. Designing for Cooperation. In Alliance Advantage, Chapter 5. Harvard Business School Press. 12
  • 13. REFERENCES BOOKS Diversification, Multi-Business Firm and Corporate Advantage • Goold, Michael; Andrew Campbell; and Marcus Alexander. 1994. Corporate-Level Strategy: Creating Value in the Multi-Business Company. John Wiley and Sons. Mergers and Acquisitions • Bruner, Robert. 2004. Applied Mergers and Acquisitions. John Wiley and Sons. • Haspeslagh, Philippe, and David Jemison. 1991. Managing Acquisitions: Creating Value Through Corporate Renewal. The Free Press. • Koller, Tim; Marc Goedhart; and David Wessels. 2005. Valuation: Measuring and Managing the Value of Companies, 4th edition. John Wiley and Sons. • Weston, Fred; Mark Mitchell; and Harold Mulherin. 2003. Takeovers, Restructuring, and Corporate Governance, 4th edition. Prentice-Hall. Strategic Alliances • Contractor, F.J., and P. Lorange. 2002. Cooperative Strategies and Alliances. Pergamon, Elsevier Science. • Doz, Yves, and Gary Hamel. 1998. Alliance Advantage: The Art of Creating Value Through Partnering. Harvard Business School Press. • Dussauge, Pierre, and Bernard Garrette. 1999. Cooperative Strategy: Competing Successfully Through Strategic Alliances. John Wiley and Sons. • Sehnkar, O., and J. Reuer. 2006. Handbook of Strategic Alliances. Sage Publications. ARTICLES Diversification, Multi-Business Firm and Corporate Advantage • Khanna, T., and K. Palepu. 1997. Why Focused Strategies May Be Wrong for Emerging Markets. Harvard Business Review, July. Mergers and Acquisitions • Koeplin, J.; A. Sarin; and A.C. Shapiro. 2000. The Private Company Discount. Journal of Applied Corporate Finance 12(4): 94–101. • Rappaport, Alfred, and Mark L. Sirower. 2001. Stock or Cash?: The Trade-offs for Buyers and Sellers in Mergers and Acquisitions. In Harvard Business Review on Mergers and Acquisitions. • Capron, Laurence and Jung-Shin Chen. 2007. Acquisitions of private versus public firms: Private information, target selection and acquirer returns. Strategic Management Journal. Strategic Alliances • Dyer, Jeffrey; Prashant Kale; and Harbir Singh. 2001. How to Make Strategic Alliances Work. Sloan Management Review 42(4): 37–43. • Dyer, Jeffrey H.; Prashant Kale; and Harbir Singh. 2004. When to Ally and When to Acquire. Harvard Business Review, July. • Kale, Prashant, and Phanish Puranam. 2004. Equity Ownership in Technology Sourcing Relationships: An Integrative Framework. California Management Review, Spring, 46(3): 77– 99. 13

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