Chapter 8

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Chapter 8

  1. 1. Acquisition and Restructuring Strategies Chapter Eight Chapter 8© 2006 by Nelson, a division of Thomson Canada Limited. 8-1
  2. 2. Chapter 3 External The Strategic Strategic The Strategic Management Process Inputs Environment Strat. Intent Management . Chapter 4 Strat. Mission Internal Process Environment Strategy Formulation Strategy ImplementationStrategic Actions Chapter 5 Chapter 6 Chapter 7 Chapter 11 Chapter 12 Bus. - Level Competitive Corp. - Level Corporate Structure Strategy Dynamics Strategy Governance & Control Chapter 8 Chapter 9 Chapter 10 Chapter 13 Chapter 14 Acquisitions & International Cooperative Strategic Entrepreneurship Restructuring Strategy Strategies Leadership & Innovation Outcomes Strategic Chapter 2 Chapter 1 Feedback Above Average Strategic Returns Competitiveness © 2006 by Nelson, a division of Thomson Canada Limited. 8-2
  3. 3. Acquisition and Restructuring StrategiesKnowledge Objectives:2. Explain the popularity of acquisition strategies for firms competing in the global economy.3. Discuss reasons firms use an acquisition strategy to achieve strategic competitiveness.4. Describe seven problems that work against developing a competitive advantage using an acquisition strategy.5. Name and describe attributes of effective acquisitions.6. Define the restructuring strategy and distinguish among it’s common forms.7. Explain the short-term and long-term outcomes of the different types of restructuring strategies. © 2006 by Nelson, a division of Thomson Canada Limited. 8-3
  4. 4. Mergers and AcquisitionsMerger: A transaction where two firms agree tointegrate their operations on a relatively co- equal basis. © 2006 by Nelson, a division of Thomson Canada Limited. 8-4 *
  5. 5. Mergers and AcquisitionsAcquisition: A strategy where one firm buys a controllingor 100% interest in another firm with the intent of making the acquired firm a subsidiary within its portfolio.Takeover: An acquisition where the target firm did not solicit the bid of the acquiring firm. © 2006 by Nelson, a division of Thomson Canada Limited. 8-5
  6. 6. Horizontal Acquisition The acquisition of a company competing in the same industry in which the acquiring firm competes.Vertical Acquisition A firm acquiring a supplier of distributor of one or more of it’s goods or services.Related Acquisition The acquisition of a firm in a highly related industry. © 2006 by Nelson, a division of Thomson Canada Limited. 8-6
  7. 7. Reasons for Acquisitions© 2006 by Nelson, a division of Thomson Canada Limited. 8-7
  8. 8. Reasons for Acquisitions Increased Market Power Acquisition intended to reduce the competitive balance of the industry Alcan’s purchase of Pechiney (Ch. 1 opening case) Overcome Barriers to Entry Acquisitions overcome costly barriers to entry which may make “start-ups” economically unattractive Best Buys purchase of Future ShopLower Cost & Risk of New Product Development Buying established businesses reduces risk of start- up ventures Pharmaceutical firms access new products through acquisitions of other drug manufacturers © 2006 by Nelson, a division of Thomson Canada Limited. 8-8
  9. 9. Reasons for AcquisitionsIncreased Speed to Market Closely related to Barriers to Entry, allows market entry in a more timely fashion British Telcom’s Acquisition of Ireland’s East TelecomIncreasing Diversification and Competitive Scope Firms may use acquisitions to restrict dependence on a single or a few products or markets Toronto’s Onex CorporationAvoiding Excessive Competition Firms may acquire businesses in which competitive pressures are less intense than in their core business The Jim Pattison Group of Companies © 2006 by Nelson, a division of Thomson Canada Limited. 8-9
  10. 10. Reasons for AcquisitionsLearn & Develop New Capabilities Acquiring firms with new capabilities helps the acquiring firm to learn new knowledge and remain agile.Angiotech: a Vancouver based research lab.Reshape the firm’s competitive scope Reducing a firm’s dependence on specific markets alters the firm’s competitive scope.The Jim Pattison Group of Companies © 2006 by Nelson, a division of Thomson Canada Limited. 8-10
  11. 11. Problems With Acquisitions © 2006 by Nelson, a division of Thomson Canada Limited. 8-11
  12. 12. Problems with AcquisitionsIntegration Difficulties Differing cultures may make integration of firms difficult.TD Banks acquisition of Canada TrustInadequate Evaluation of Target‘Winners Curse’ causes acquirer to overpay for firm. Dynegy’s near purchase of EnronLarge or Extraordinary Debt Costly debt can create onerous burden on cash outflows. TransCanada’s acquisition of Nova Corp © 2006 by Nelson, a division of Thomson Canada Limited. 8-12
  13. 13. Problems with AcquisitionsInability to Achieve Synergy Justifying acquisitions can increase estimate of expected benefits. Vivendi’s purchase of Seagram Co. Ltd.Overly Diversified Acquirer doesn’t have expertise required to manage unrelated businesses. GE--prior to selling businesses and refocusingManagers Overly Focused on Acquisitions Managers lose track of core business by spending so much effort on acquisitions. FuturelinkToo Large Large bureaucracy reduced innovation & flexibility. © 2006 by Nelson, a division of Thomson Canada Limited. 8-13
  14. 14. Attributes of friendly Acquisitions © 2006 by Nelson, a division of Thomson Canada Limited. 8-14
  15. 15. Restructuring ActivitiesDownsizingWholesale reduction of employees. Agilient Technologies cutting of its workforce by 15,000 jobsDownscopingSelectively divesting or closing non-core businesses.Reducing scope of operations.Leads to greater focus. Telus cutting of its workforce by 6,000 jobsLeveraged Buyout (LBO) A party buys a firm’s entire assets in order to take the firm private. Forsmann Little’s buyout of Dr. Pepper © 2006 by Nelson, a division of Thomson Canada Limited. 8-15
  16. 16. Restructuring and Outcomes Short-Term Long-Term Alternatives Outcomes Outcomes Reduced Loss of Labour Costs Human CapitalDownsizing Reduced Lower Debt Costs PerformanceDownscoping Emphasis on Higher Strategic Controls Performance Leveraged Buyout High Debt Higher Risk Costs © 2006 by Nelson, a division of Thomson Canada Limited. 8-16

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