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Wk 12 diversificatn Ch 6 rev. K

Wk 12 diversificatn Ch 6 rev. K - 6-1 A study evaluated the...

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6-1 A study evaluated the stock market reaction of 600 acquisitions over the period between 1975 and 1991. Acquiring firms suffered an average 4 percent drop in market value in the three months following the acquisitions announcement. In a study by Solomon Smith Barney of US companies acquired since 1997 in deals for US$15 billion or more, the stocks of the acquiring firms have, on average, underperformed the S&P stock index by 14 percentage points and underperformed their peer group by 4 percentage points after the deals were announced.
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2 Corporate-Level Strategy: Creating Value through Diversification – Ch 6 Learning Outcomes: Able to explain and relate how diversification creates value Able to reflect on the means for a firm to diversify
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3 Background Value or cons of diversification, a  corporate-level strategy How corporations can use related  diversification to achieve  synergistic benefits through  economies of scope and market  power. .
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4 Background How corporations can use  unrelated diversification to attain  synergistic benefits through  corporate restructuring,  parenting, and portfolio analysis. The various means of engaging  in diversification-mergers and  acquisitions, joint  ventures/strategic alliances, and  internal development. .
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5 Making Diversification Work Diversification initiatives must create value for shareholders Mergers and acquisitions Strategic alliances Joint ventures Internal development Diversification should create synergy Business 2 Business 1
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6 Synergy Related businesses (horizontal relationships) Sharing tangible resources Sharing intangible resources Business 2 Business Business 1 Production facilities facilities Distribution Distribution channels channels Favorable Favorable reputation reputation Patents, Patents, copyrights, etc. copyrights, etc. Specialized Specialized skills skills Manufacturing Manufacturing facilities
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7 Synergy Unrelated businesses (hierarchical relationships) Value creation derives from corporate office Leveraging support activities Technology Technology development development Busines Busines s 2 s 2 Busines Busines s 1 s 1
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