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Transcript of SM Presentation12
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Acquisition, Mergers & Strategic
AlliancesPresented By:
Shweta Gupta (A-15)
Disha Lunagariya (A-25)
Ankit Mehta(A-29)
Ankit Pansuria(A-35)
Milap Udani(A-57)
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Mergers, Acquisitions, and Takeovers:
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Types Of Acquisitions
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Reasons for Acquisitions
Learning andLearning and
developingdeveloping
new capabilitiesnew capabilities
Reshaping firmReshaping firmss
competitive scopecompetitive scope
IncreasedIncreased
DiversificationDiversification
P&GP&G -- GilleteGilleteLower risk thanLower risk than
developing newdeveloping new
productsproducts
Cost of new productCost of new product
developmentdevelopment
((pepsicopepsico & Tropicana)& Tropicana)
OvercomingOvercoming
entry barriersentry barriers
((WalmartWalmart,, BhartiBharti))
Increase speedIncrease speed
to marketto market
IncreasedIncreased
market powermarket power
((NestleNestle--Gerber)Gerber)
Making anMaking an
AcquisitionAcquisition
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Problems in Achieving Acquisition
Success
Too largeToo large
TataTata -- CorusCorus
ManagersManagers
overly focused onoverly focused on
acquisitionsacquisitions
Extraordinary debtExtraordinary debt
(TATA, jaguar)(TATA, jaguar)
InadequateInadequate
target evaluationtarget evaluation
Too muchToo much
diversificationdiversification
Inability toInability to
achieve synergyachieve synergy
IntegrationIntegration
difficultiesdifficulties
ProblemsProblems
withwith
AcquisitionsAcquisitions
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Effective Acquisition Strategies
ComplementaryComplementary
Assets /ResourcesAssets /Resources
Buying firms with assets that meetBuying firms with assets that meet
current needs to build competitiveness.current needs to build competitiveness.
FriendlyFriendly
AcquisitionsAcquisitionsFriendly deals make integration go moreFriendly deals make integration go more
smoothly.smoothly.
Careful SelectionCareful Selection
ProcessProcess
Deliberate evaluation and negotiationsDeliberate evaluation and negotiations
are more likely to lead to easyare more likely to lead to easy
integration and building synergies.integration and building synergies.
Maintain FinancialMaintain Financial
SlackSlack
Provide enough additional financialProvide enough additional financial
resources so that profitable projectsresources so that profitable projects
would not be foregone.would not be foregone.
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Attributes ofEffective Acquisitions
AttributesAttributes ResultsResults
LowLow--toto--ModerateModerate
DebtDebt
Merged firm maintainsMerged firm maintains
financial flexibilityfinancial flexibility
FlexibilityFlexibility Has experience atHas experience atmanaging change and ismanaging change and is
flexible and adaptableflexible and adaptable
SustainSustain
EmphasisEmphasis
onon InnovationInnovation
Continue to invest in R&DContinue to invest in R&D
as part of the firmas part of the firms overalls overall
strategystrategy
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Restructuring
A reduction in the number of a
firms employees and sometimes in
the number of its operating units.
May or may not change the
composition of businesses in thecompanys portfolio.
Typical reasons for downsizing:
Expectation of improved
profitability from cost reductions
Desire or necessity for more
efficient operations
Ex. Tata Corus/jaguar landover
DownsizingDownsizing
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Restructuring
DownsizingDownsizing
DownscopingDownscoping
A divestiture, spin-off or other means of
eliminating businesses unrelated to a firms
core businesses.
A set of actions that causes a firm to
strategically refocus on its core businesses.
May be accompanied by downsizing, butnot eliminating key employees from its
primary businesses.
Smaller firm can be more effectively
managed by the top management team.
Ex. TATA Lakme HLL
Ex. UB Group
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Restructuring
DownsizingDownsizing
DownscopingDownscoping
LeveragedLeveragedBuyoutsBuyouts
A restructuring strategy whereby a party
buys all of a firms assets in order to take
the firm private.
Significant amounts of debt may be
incurred to finance the buyout.
Immediate sale of non-core assets topare down debt.
Can correct for managerial mistakes
Managers making decisions that
serve their own interests rather than
those of shareholders.
Can facilitate entrepreneurial efforts and
strategic growth.
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Cooperative Strategy
Cooperative Strategy A strategy in which firms work together to achieve
a shared objective.
Cooperating with other firms is a strategythat:
Creates value for a customer.
Exceeds the cost of constructing customer value inother ways.
Establishes a favorable position relative to
competitors.
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Strategic Alliance
A primary type of cooperative strategy in
which firms combine some of their resources
and capabilities to create a mutual
competitive advantage.
Involves the exchange and sharing of resources
and capabilities to co-develop or distribute goods
and services. Requires cooperative behavior from all partners.
Ex. Adani - Reliance
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Strategic Alliance
CombinedCombined
ResourcesResources
CapabilitiesCapabilities
Core CompetenciesCore Competencies
ResourcesResources
CapabilitiesCapabilities
Core CompetenciesCore Competencies
ResourcesResources
CapabilitiesCapabilities
Core CompetenciesCore Competencies
Firm AFirm A Firm BFirm B
Mutual interests in designing, manufacturing,Mutual interests in designing, manufacturing,
or distributing goods or servicesor distributing goods or services
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Types of Strategic Alliances
Joint Venture
Two or morefirms create alegallyindependentcompany bysharing some oftheir resourcesand capabilities
Unitech - Telenor
Equity StrategicAlliance
Partners whoown differentpercentages ofequity in aseparatecompany theyhave formed.
Ex, vodafoneessar
NonequityStrategic Alliance
Two or morefirms develop acontractualrelationship toshare some oftheir uniqueresources andcapabilities.
UPS - Nike
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Reasons for Strategic Alliances
Market Reason
Slow Cycle Gain access to a restricted
market
Establish a franchise in a newmarket
Maintain market stability (e.g.,
establishing standards)
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Reasons for Strategic Alliances
Market Reason
Fast Cycle Speed up development of new
goods or service
Speed up new market entry Maintain market leadership
Form an industry technology
standard Share risky R&D expenses
Overcome uncertainty
AMA-IGNU
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Reasons for Strategic Alliances
Market Reason
Standard Cycle Gain market power (reduceindustry overcapacity)
Gain access to complementary
resources
Establish economies of scale
Overcome trade barriers
Meet competitive challenges from
other competitors Pool resources for very large
capital projects
Learn new business techniques
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Business-Level Cooperative
StrategiesComplementary
strategic
Alliance
Competitionresponse
strategy
Uncertaintyreducingstrategy
Competitionreducingstrategy
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Complementary AlliancesComplementary Alliances
Combine partner firms assets in
complementary ways to create new value.
Include distribution, supplier or outsourcingalliances where firms rely on upstream ordownstream partners to build competitive
advantage.
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Competition Response AlliancesCompetition Response Alliances
Occur when firms join forces to respond to astrategic action of another competitor.
Because they can be difficult to reverse andexpensive to operate, strategic alliances areprimarily formed to respond to strategic
rather than tactical actions.
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Uncertainty Reducing AlliancesUncertainty Reducing Alliances
Are used to hedge against risk and uncertainty.
These alliances are most noticed in fast-cyclemarkets
An alliance may be formed to reduce theuncertainty associated with developing newproduct or technology standards.
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Competition Reducing AlliancesCompetition Reducing Alliances
Created to avoid destructive or excessivecompetition
Explicit collusion: when firms directly
negotiate production output and pricingagreements in order to reduce competition(illegal).
OPEC
Tacit collusion: when firms in an industryindirectly coordinate their production andpricing decisions by observing other firmsactions and responses.
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Corporate-Level Cooperative Strategy
Corporate-level Strategies
Help the firm diversify in terms of
Products offered to the market
The markets it serves
Require fewer resource commitments.
Permit greater flexibility in terms of efforts to
diversify partners
operations.
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Diversifying Strategic Alliances
Allows a firm to expand into new
product or market areas without
completing a merger or an acquisition.
Provides some of the potential
synergistic benefits of a merger or
acquisition, but with less risk and
greater levels of flexibility.
Permits a test of whether a future
merger between the partners would
benefit both parties.
DiversifyingDiversifying
Strategic AllianceStrategic Alliance
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Franchising Spreads risks and uses resources,
capabilities, and competencies
without merging or acquiring another
company.
A contractual relationship (the
franchise) is developed between twoparties, the franchisee and the
franchisor.
An alternative to pursuing growth
through mergers and acquisitions.
DiversifyingDiversifying
Strategic AllianceStrategic Alliance
SynergisticSynergistic
Strategic AllianceStrategic Alliance
FranchisingFranchising
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International Cooperative
Strategies Cross-border Strategic Alliance
A strategy in which firms with headquarters in
different nations combine their resources andcapabilities to create a competitive advantage.
A firm may form cross-border strategic alliances to
leverage core competencies that are the
foundation of its domestic success to expand intointernational markets.
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International Cooperative
Strategies (cont
d) Synergistic Strategic Alliance
Allows risk sharing by reducing financial
investment. Host partner knows local market and customs.
International alliances can be difficult to manage
due to differences in management styles, culturesor regulatory constraints.
Must gauge partners strategic intent such that
the partner does not gain access to important
technology and become a competitor.
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Network Cooperative Strategy
A cooperative strategy wherein several firms
agree to form multiple partnerships to achieve
shared objectives.
Stable alliance network
Dynamic alliance network
E
ffective social relationships and interactionsamong partners are keys to a successful
network cooperative strategy.
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Network Cooperative Strategies
(cont
d) Long term relationships thatLong term relationships thatoften appear in matureoften appear in mature
industries where demand isindustries where demand is
relatively constant andrelatively constant and
predictablepredictable
Stable networks are built forStable networks are built for
exploitationexploitation of the economiesof the economies
(scale and/or scope)(scale and/or scope)
available between the firmsavailable between the firms
Stable AllianceStable Alliance
NetworkNetwork
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Network Cooperative Strategies
(cont
d) Arrangements that evolve inArrangements that evolve inindustries with rapidindustries with rapid
technological change leadingtechnological change leading
to short product life cycles.to short product life cycles.
Primarily used to stimulatePrimarily used to stimulate
rapid, valuerapid, value--creating productcreating product
innovation and subsequentinnovation and subsequent
successful market entries.successful market entries.
Purpose is oftenPurpose is often explorationexplorationof new ideasof new ideas
Stable AllianceStable Alliance
NetworkNetwork
Dynamic AllianceDynamic Alliance
NetworkNetwork