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PowerPoint Presentation by Charlie Cook The University of West Alabama 2007 Thomson/South-Western. All rights reserved.
KNOWLEDGE OBJECTIVES Studying this chapter should provide you with the strategic management knowledge needed to:
1. Explain the popularity of acquisition strategies in firms competing in the global economy. 2. Discuss reasons why 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. Name and describe attributes of effective acquisitions. 5. Define the restructuring strategy and distinguish among its common forms. 6. Explain the short- and long-term outcomes of the different types of restructuring strategies.
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Acquisition
One firm buys a controlling, or 100% interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio.
Takeover
A special type of acquisition when the target firm did not solicit the acquiring firms bid for outright ownership.
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FIGURE
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Making an Acquisition
Increased diversification
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Revenue-based synergies
Acquisitions with similar characteristics result in higher performance than those with dissimilar characteristics.
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Related Acquisitions
Because of the difficulty in implementing synergy, related acquisitions are often difficult to implement.
710
Cross-Border Acquisitions
Acquisitions made between companies with headquarters in different countries
Are often made to overcome entry barriers. Can be difficult to negotiate and operate because of the differences in foreign cultures.
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Returns are more predictable because of the acquired firms experience with the products.
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Reducing a companys dependence on specific markets alters the firms competitive scope.
715
Firms should acquire other firms with different but related and complementary capabilities in order to build their own knowledge base.
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Extraordinary debt
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Firms experience transaction costs when they use acquisition strategies to create synergy.
Firms tend to underestimate indirect costs when evaluating a potential acquisition.
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TABLE 7.1
Attributes 1. Acquired firm has assets or resources that are complementary to the acquiring firms core business 2. Acquisition is friendly 3. Acquiring firm conducts effective due diligence to select target firms and evaluate the target firms health (financial, cultural, and human resources) 4. Acquiring firm has financial slack (cash or a favorable debt position) 5. Merged firm maintains low to moderate debt position 6. Acquiring firm has sustained and consistent emphasis on R&D and innovation 7. Acquiring firm manages change well and is flexible and adaptable Results 1. High probability of synergy and competitive advantage by maintaining strengths 2. Faster and more effective integration and possibly lower premiums 3. Firms with strongest complementarities are acquired and overpayment is avoided 4. Financing (debt or equity) is easier and less costly to obtain 5. Lower financing cost, lower risk (e.g., of bankruptcy), and avoidance of trade-offs that are associated with high debt 6. Maintain long-term competitive advantage in markets 7. Faster and more effective integration facilitates achievement of synergy
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Low-to-Moderate Merged firm maintains financial flexibility Debt Sustain Emphasis on Innovation Continue to invest in R&D as part of the firms overall strategy
Flexibility
729
Restructuring
A strategy through which a firm changes its set of businesses or financial structure.
Failure of an acquisition strategy often precedes a restructuring strategy.
Restructuring may occur because of changes in the external or internal environments.
Restructuring strategies:
Downsizing
Downscoping
Leveraged buyouts
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FIGURE
7.2
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