Ch07MBA

Ch07MBA - Chapter 7: Acquisition and Restructuring...

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1 Chapter 7: Acquisition and Restructuring Strategies Overview: Why firms use acquisition strategies Seven problems working against developing a competitive advantage using an acquisition strategy Attributes of effective acquisitions Restructuring strategies
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2 Introduction: Merger vs. Acquisition vs. Takeover Merger Two firms agree to integrate their operations on a relatively co-equal basis Acquisition One firm buys a controlling, 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. Takeover Special type of acquisition strategy wherein the target firm did not solicit the acquiring firm's bid Unfriendly acquisition
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3 Introduction: Popular strategy among U.S. firms for many years Can be used because of uncertainty in the competitive landscape Increase market power because of competitive threat Spread risk due to uncertain environment Shift core business into different markets Intent: increase firm’s strategic competitiveness and value – the reality, however, is returns are close to zero for acquiring firm Growth strategy Should lead to strategic competitiveness and above average returns
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4 Reasons for Acquisitions Increased market power Exists when a firm is able to sell its goods or services above competitive levels or when the costs of its primary or support activities are lower than those of its competitors Sources of market power include Size of the firm Resources and capabilities to compete in the market Share of the market Entails buying a competitor, a supplier, a distributor, or a business in a highly related industry
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5 Reasons for Acquisitions To increase market power firms use Horizontal Acquisitions Acquirer and acquired companies compete in the same industry Acquirer and acquired companies compete in the same industry Vertical Acquisitions Firm acquires a supplier or distributor of one or more of its goods or Firm acquires a supplier or distributor of one or more of its goods or services; leads to additional controls over parts of the value chain services; leads to additional controls over parts of the value chain Related Acquisitions Firm acquires another company in a highly related industry Firm acquires another company in a highly related industry
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Ch07MBA - Chapter 7: Acquisition and Restructuring...

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