Corporate Growth


A major acquisition is the fastest way to
compensate for a company's failure to
grow organically (via internal means)
You don't get a gazelle by breeding
dinosaurs.
– “When Dinosaurs Mate,” G. Hamel, WSJ
Best Path to Growth?
Ford
– Jaguar
– Mazda
General Motors
– Saab
Hewlett-Packard
– Compaq
Unilever
– Knorr
– Ben & Jerry
Starbuck’s
Southwest Airlines
Toyota
Dell
Wal-Mart
Nike
Daimler-Benz
– Chrysler
Corporate strategy solutions
Business strategy solutions
Dell acquired gaming PC maker Alienware to expand position in
high-end niche segment (prices start at $5995)
Entering New Businesses

WHY?
– Does business fit?
o Financially
o Strategically
o Culturally

HOW?
– Acquisition or merger
– Internal start-up
– Joint ventures
– Alliance
Justifications for M&A

Attractiveness test
– Industry factors
– Core competencies
– Strategic position

Cost of entry test
– Buy outstanding shares
– Cash
– Contributions to merger or JV

Better off test
– Synergies, econ. of scale/scope
– Consolidation of resources, activities
– Leverage strategic assets for competitive advantage?
Blue Circle
Unrelated Diversified Firm
HQ
Bricks
Cement
Cement
Products
OK
Lawn
Mowers
Gas
Stoves
Unrelated to Other Units
or
Core Competence
Boddingtons
Related Horizontal Diversified Firm
HQ
Pubs
Hotels
Restaurants
Nursing
Homes
Related to Other Units
via
Core Competence
Health
Clubs
Adidas-Reebok Merger
+
vs.
Adidas-Reebok Merger
+
Employees
26,100
24,600
U.S. Market
Share
21.1%
36.3%
Global Market
Share
25.0%
33.2%
Net Income
$517.9 mil
$1.2 bil
Hot Product
SmartShoe
+ Nelly’s shoe line
L. Armstrong apparel
+ iPod Sport Kit
Adidas-Reebok
Why?
 Better off?

Adidas-Reebok Merger
+
vs.
Gillette
Personal
Grooming
Small
Appliances
Oral
Care
Portable
Power
Gillette
Personal
Grooming
Small
Appliances
Oral
Care
Portable
Power
PEST
PEST
PEST
PEST
Value Chain Analysis
Gillette’s acquisition of Duracell allows it to leverage the
following strategic assets across business units (synergies)
Gillette
Personal
Grooming
Small
Appliances
Oral
Care
Portable
Power
PROCTER & GAMBLE
Soaps
Food
Beverages
Paper
Products
Gillette
Razors
Core Product
Mr. Coffee
Machines
Duracell
Batteries
Oral-B
Toothbrush
M&A Exercise
Nokia should acquire _________________
Motorola
Nextel
Sony-Ericsson
Nokia
Red Hat
XM-Sirius Radio
Blackberry
Apple
Netscape
AMD
Other?
Palm
Circuit City
Attractiveness Test
Why is the _________ industry attractive to Nokia?
1.
2.
3.
4.
5.
Cost of Entry Test
Can Nokia afford to acquire ___________?
Yes
No
Better-off Test
(1)
The acquisition of _____ gives it the following position in
strategic space in the _____ industry
Dimension 1
Dimension 2
Better-off Test
(2)
Nokia’s acquisition of ______ allows it to leverage the following
strategic assets across business units (synergies)
Nokia
Cell Phones
Better-off Test
(3)
Nokia’s acquisition of ________ gives it the following business
unit portfolio
High
Long-term
Industry
Attractiveness
Mobile
Phones
Med
Low
Strong
Avg.
Weak
Competitive Advantage