Inputs
Chapter Strategic 2 External Environment Strategic Intent Chapter 3 Internal Environment Strategic Mission
The Strategic Management Process
Strategy Implementation
Chapter 10 Corporate Governance Chapter 13
Entrepreneurship
Chapter 7 Mergers and Acquisitions
Mgmt 430 A Summer 2005 Ivy Yang
Actions
Strategy Formulation
Chapter 4 Business-Level Strategy Chapter 7 Acquisitions & Restructuring Chapter 5 Competitive Dynamics Chapter 6 Corporate-Level Strategy
& Innovation
Outcomes
Strategic
Feedback
Strategic Competitiveness Above Average Returns
NBC Universal: Media Merger AOL: Acquisition of Time Warner
Opportunities: Synergy
AOL needs programming high speed distribution & TW needs an Internet portal Control of significant amount of programming distributed over vast broadband cable networks Total market cap. of almost $300 bil. with annual revenue of over $32 bil. ($41bil. in 2002)
Problems:
Possible corporate culture clash Devaluation of AOL stock
Opportunities: Combines Vivendi' Universal Pictures, NBC (only s broadcaster without a major studio), MSNBC, CNBC, USA, Sci-Fi, Universal Theme Parks, Telemundo and extensive motion picture library into media powerhouse ($13 bil. In annual revenue). Vivendi receives $5 billion to pay debt. Problems: 80/20 equity alliance: GE' disciplined corporate s culture vs. Universal' freewheeling ` s Hollywood'style. Expensive. Total cost: $14b.
Mergers and Acquisitions
Merger: A transaction where two firms integrate their operations on a co-equal basis because they have resources and capabilities that, when combined, may create a competitive advantage.
Time/Warner/AOL Chase/Chemical/JP Morgan Compaq/HP Morgan Stanley/Dean Witter FedEx/Kinko' s Kmart/Sears Exxon/Mobil
Mergers and Acquisitions
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 within its portfolio of businesses .
PepsiCo/KFC/Pizza Hut/Taco Bell Norwest/Wells Fargo Sprint/Centel AT&T/TCI/Media One Citigroup/Travelers Sunbeam/Coleman Chevron/Gulf Oil GE/NBC General Mills/Pillsbury Qwest/US West
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Mergers and Acquisitions
Takeover: An acquisition where the target firm did not solicit the bid of the acquiring firm.
AT&T/NCR Western Resources/KCP&L KKR/RJR Nabisco Pfizer/Warner-Lambert WorldCom/MCI
Reasons for Acquisitions
1. Greater Market Power 2. Overcome Barriers to Entry 3. Avoid Costs & Risks of New Product Development 4. Achieve Diversification 5. Avoid Excessive Competition
Reasons for Acquisitions
Increased Market Power
Acquisition intended to alter the competitive balance of the industry
Mergers and Acquisitions
Horizontal Acquisition
NWA/Republic Airlines SBC/Pacific Telesis/Ameritec Bank of America/Nations Bank Pfizer/Warner-Lambert Norwest/Wells Fargo Exxon/Mobil Cox/TCA Chevron/Texaco
Chrysler/Mercedes Benz
Mergers and Acquisitions
Related Acquisition
Time Warner/Turner Broadcasting AT&T/McCaw Cellular/TCI Viacom/Blockbuster TCA/Myriad Video/CBS General Mills/Pillsbury
Reasons for Acquisitions
Increased Market Power
Acquisition intended to alter the competitive balance of the industry Chrysler/Mercedes Benz
Overcome Barriers to Entry
Acquisitions overcome costly barriers to entry which may make " start-ups"economically unattractive U.S. West/Continental Cablevision
Lower Cost and Risk of New Product Development
Buying established businesses reduces risk of start-up ventures
General Electric' acquisition of NBC s
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Reasons for Acquisitions
Increased Speed to Market
Closely related to Barriers to Entry, allows market entry in a more timely fashion BMW' acquisition of Rover s
Problems with Acquisitions
Integration Difficulties
Differing cultures can make integration of firms difficult
Diversification
Quick way to move into businesses when firm currently lacks experience and depth in industry Seagram' acquisition of Universal Studios s
Inadequate evaluation of Target
" Winners Curse"bid causes acquirer to overpay for firm
Avoiding Excessive Competition
Firms may acquire businesses in which competitive pressures are less intense than in their core business
Large or Extraordinary Debt
Costly debt can create onerous burden on cash outflows
Wendy' acquisition of Horton' Coffee shops s s
Problems with Acquisitions
Inability to Achieve Synergy
Justifying acquisitions can increase estimate of expected benefits
Restructuring Strategies
Restructuring refers to changes in the composition of a firm' set of businesses s and/or financial structure.
Downsizing: Layoffs Downscoping: Reduce firm unrelatedness Leveraged Buyouts: Going private
Overly Diversified
Acquirer doesn' have expertise required to manage t unrelated businesses
Managers Overly Focused on Acquisitions
Managers lose track of core business by spen...