Acquisition and Restructuring
Strategies
Chapter Eight
Chapter 8
© 2006 by Nelson, a division of Thomson Canada Limited.
8-1
Strategic
Inputs
Chapter 3
External
Environment
The Strategic
Strat. Intent
Management
Process
.
Chapter 4
Internal
Environment
Strat. Mission
Strategy Formulation
Chapter 5
Bus. - Level
Strategy
Chapter 6
Chapter 7
Competitive Corp. - Level
Dynamics
Strategy
Chapter 9
Chapter 8
Acquisitions & International
Strategy
Restructuring
Strategic
Outcomes
Strategic Actions
The Strategic Management Process
Chapter 2
Above Average
Returns
Chapter 10
Cooperative
Strategies
Chapter 1
Strategic
Competitiveness
Strategy Implementation
Chapter 11
Chapter 12
Corporate
Structure
Governance
& Control
Chapter 13 Chapter 14
Strategic Entrepreneurship
Leadership & Innovation
Feedback
© 2006 by Nelson, a division of Thomson Canada Limited.
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Acquisition and Restructuring Strategies
Knowledge Objectives:
1. Explain the popularity of acquisition strategies for firms
competing in the global economy.
2.
Discuss reasons firms use an acquisition strategy to
achieve strategic competitiveness.
3.
Describe seven problems that work against developing a
competitive advantage using an acquisition strategy.
4.
5.
Name and describe attributes of effective acquisitions.
Define the restructuring strategy and distinguish among
it’s common forms.
6.
Explain the short-term and long-term outcomes of the
different types of restructuring strategies.
© 2006 by Nelson, a division of Thomson Canada Limited.
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Mergers and Acquisitions
Merger:
A transaction where two firms agree to
integrate their operations on a relatively coequal basis.
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*
Mergers and Acquisitions
Acquisition:
A strategy where one firm buys a controlling
or 100% interest in another firm with the intent
of making the acquired firm a subsidiary
within its portfolio.
Takeover:
An acquisition where the target firm did not
solicit the bid of the acquiring firm.
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Horizontal Acquisition
The acquisition of a company competing in the
same industry in which the acquiring firm
competes.
Vertical Acquisition
A firm acquiring a supplier of distributor of one
or more of it’s goods or services.
Related Acquisition
The acquisition of a firm in a highly related
industry.
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Reasons for Acquisitions
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Reasons for Acquisitions
Increased Market Power
Acquisition intended to reduce the competitive balance
of the industry
Alcan’s purchase of Pechiney (Ch. 1 opening case)
Overcome Barriers to Entry
Acquisitions overcome costly barriers to entry which may
make “start-ups” economically unattractive
Best Buys purchase of Future Shop
Lower Cost & Risk of New Product Development
Buying established businesses reduces risk of startup ventures
Pharmaceutical firms access new products through
acquisitions of other drug manufacturers
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Reasons for Acquisitions
Increased Speed to Market
Closely related to Barriers to Entry, allows market
entry in a more timely fashion
British Telcom’s Acquisition of Ireland’s East Telecom
Increasing Diversification and Competitive Scope
Firms may use acquisitions to restrict dependence on a
single or a few products or markets
Toronto’s Onex Corporation
Avoiding Excessive Competition
Firms may acquire businesses in which competitive
pressures are less intense than in their core business
The Jim Pattison Group of Companies
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Reasons for Acquisitions
Learn & Develop New Capabilities
Acquiring firms with new capabilities helps the
acquiring firm to learn new knowledge and remain
agile.
Angiotech: a Vancouver based research lab.
Reshape the firm’s competitive scope
Reducing a firm’s dependence on specific markets alters
the firm’s competitive scope.
The Jim Pattison Group of Companies
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Problems With Acquisitions
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Problems with Acquisitions
Integration Difficulties
Differing cultures may make integration of firms
difficult.
TD Banks acquisition of Canada Trust
Inadequate Evaluation of Target
‘Winners Curse’ causes acquirer to overpay for firm.
Dynegy’s near purchase of Enron
Large or Extraordinary Debt
Costly debt can create onerous burden on cash outflows.
TransCanada’s acquisition of Nova Corp
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Problems with Acquisitions
Inability to Achieve Synergy
Justifying acquisitions can increase estimate
of expected benefits.
Vivendi’s purchase of Seagram Co. Ltd.
Overly Diversified
Acquirer doesn’t have expertise required to manage
unrelated businesses.
GE--prior to selling businesses and refocusing
Managers Overly Focused on Acquisitions
Managers lose track of core business by spending so
much effort on acquisitions.
Futurelink
Too Large
Large bureaucracy reduced innovation & flexibility.
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Attributes of friendly Acquisitions
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Restructuring Activities
Downsizing
Wholesale reduction of employees.
Agilient Technologies cutting of its
workforce by 15,000 jobs
Downscoping
Selectively divesting or closing non-core businesses.
Reducing scope of operations.
Leads to greater focus.
Telus cutting of its workforce by 6,000 jobs
Leveraged Buyout (LBO)
A party buys a firm’s entire assets in order to take
the firm private.
Forsmann Little’s buyout of Dr. Pepper
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Restructuring and Outcomes
Alternatives
Downsizing
Downscoping
Leveraged
Buyout
Short-Term
Outcomes
Long-Term
Outcomes
Reduced
Labour Costs
Loss of
Human Capital
Reduced
Debt Costs
Lower
Performance
Emphasis on
Strategic Controls
Higher
Performance
High Debt
Costs
Higher Risk
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