C39 CN Tutorial 2 - Synergy and Conglomerates Answers.doc

4 only conglomerates in emerging economies have the

This preview shows page 4 - 6 out of 6 pages.

4. Only conglomerates in emerging economies have the resources to develop a big brand name. This can also reassure consumers. For example there are fears of food contamination in China. 4. What does the evidence suggest about conglomerate diversification? Empirical Evidence on the Acquisition Programs of the 1960s Generally positive. Eg Schipper and Thompson COURSE NOTES: TUTOR CODE TITLE
Image of page 4

Subscribe to view the full document.

SCHOOL OF MANAGEMENT AND LANGUAGES How Likely Is It That Diversifying Acquisitions Will End Up Being Sold Off? Very likely after congolomerate boom. Eg Kaplan and Weisbach Is There a Diversification Discount? Widely believed in the financial press. Eg FT Eg Servaes found that the Tobin's q for diversified firms was significantly lower than those for multisegment companies. Villalonga finds a diversification premium, as opposed to a discount. Focus Hypothesis Comment and Jarrell found that increased corporate focus or specialization was consistent with shareholder wealth maximization. Explanation for the Diversification Discount Lamont and Polk companies with discounts have higher subsequent returns than companies that traded at a premium! Related versus Unrelated Diversification Morck, Shleifer, and Vishny unrelated diversification, showed poor results. Agrawal, Jaffe, and Mandelker showed that unrelated acquisitions outperformed related acquisitions. Ambiguous 5. What are the arguments in favour of LVMH’s conglomerate structure? Strength of Vuitton is carrying LVMH fairly comfortably through the recession. Marketing and Revenue Synergies - A group structure also yields savings when negotiating deals for advertising space, property and credit-card fees. It helps to have a specialist beauty retailer, Sephora, and a chain of airport shops, DFS, to sell perfumes and cosmetics. Economies of scope - When Vuitton develops watches, say, it can call on the talents of TAG Heuer. 6. What are the arguments against? Vuitton is ‘carrying the company’ and may be missing opportunities from focus, e.g. a department store, for instance, may be asked to take Loewe or Celine in order to get Vuitton. That often frustrates people at Vuitton, however, who would prefer to use the power of the brand for its own benefit COURSE NOTES: TUTOR CODE TITLE
Image of page 5
SCHOOL OF MANAGEMENT AND LANGUAGES COURSE NOTES: TUTOR CODE TITLE
Image of page 6
You've reached the end of this preview.
  • Fall '17
  • JPM
  • Brand, Economics of production, Synergy, Vuitton

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern