Corporate Strategy (2)

Corporate Strategy (2) - BUSI698 Strategic Management...

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BUSI698 – Strategic BUSI698 – Strategic Management Management Corporate Strategy – Part 2
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Two Issues in Corporate Strategy Two Issues in Corporate Strategy Deciding on the business mix Which businesses should we be in? Modes of diversification Should we develop internally (expand) or externally (acquire)? With whom should we partner or merge? This is what we are doing today
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Firm scope – how to diversify? Firm scope – how to diversify? Internal development start up new business inside firm speed = slow; control = high can leverage existing capabilities can slowly develop new capabilities can protect proprietary assets Mergers & acquisitions i.e., purchase, merger speed = fast; control = lower can access other firms’ capabilities can be costly Alliances & Joint Ventures offer mix of both
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Mergers and Acquisitions: Mergers and Acquisitions: Valuation issues Valuation issues How much do you pay for acquisition? seller will want… net present value of expected future returns In practice (on average)… acquiring firm’s stock drops when acquisition proposed; drop again as deal nears completion however, acquired firm’s stock rises Why?
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Market Skepticism of Acquisitions Market Skepticism of Acquisitions Probably paid a premium for the target…how soon (if ever) will this premium be covered? Free cash flow and agency problems Managerial hubris and overconfidence Fit/Synergy with other business units?
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