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Chapter 7
7
Acquisition and
Restructuring Strategies
Michael
Michael A.
A. Hitt
Hitt
R.
R. Duane
Duane Ireland
Ireland
Robert
Robert E.
E. Hoskisson
Hoskisson
Strategic
Competitiveness
Feedback Above Average
Returns
Ch7
Mergers and Acquisitions
Merger
A transaction where two firms agree to integrate their
operations on a relatively coequal basis because they
have resources and capabilities that together may
create a stronger competitive advantage
Acquisition
A transaction where one firm buys another firm
with the intent of more effectively using a core
competence by making the acquired firm a
subsidiary within its portfolio of businesses
Takeover
An acquisition where the target firm did not solicit
the bid of the acquiring firm Ch7
Reasons for Problems in
Acquisitions Achieving Success
Increased Integration
market power difficulties
Overcome Inadequate
entry barriers evaluation of target
Avoid excessive
competition Too large
Ch7
Reasons for Acquisitions
Increased Market Power
Acquisition intended to reduce the competitive balance of
the industry
Example: British Petroleum’s acquisition of U.S. Amoco
+ Friendly Acquisitions
Friendly deals make integration go more smoothly
+ Low-to-Moderate Debt
Merged firm maintains financial flexibility
+ Flexibility
Has experience at managing change and is
flexible and adaptable
+ Emphasize Innovation
Continue to invest in R&D as part of the
firm’s overall strategy
Ch7-
Restructuring Activities
Downsizing
Wholesale reduction of employees
Example: Procter & Gamble’s cutting of its
worldwide workforce by 15,000 jobs
Downscoping
Selectively divesting or closing non-core businesses
Reducing scope of operations
Leads to greater focus
Example: Disney’s selling of Fairchild Publications
Ch7-
Restructuring Activities
Leveraged Buyout (LBO)
A party buys a firm’s entire assets in order to take the
firm private.
Example: Forsmann Little’s buyout of Dr. Pepper
Ch7-
Restructuring and Outcomes
Short-Term Long-Term
Alternatives
Outcomes Outcomes
Downsizing
Downscoping
Leveraged
Buyout
Ch7-
Restructuring and Outcomes
Short-Term Long-Term
Alternatives
Outcomes Outcomes
Reduced Loss of
Labor Costs Human Capital
Downsizing
Lower
Performance
Ch7-
Restructuring and Outcomes
Short-Term Long-Term
Alternatives
Outcomes Outcomes
Reduced Loss of
Labor Costs Human Capital
Downsizing
Reduced Lower
Debt Costs Performance
Downscoping
Emphasis on Higher
Strategic Controls Performance
Ch7-
Restructuring and Outcomes
Short-Term Long-Term
Alternatives
Outcomes Outcomes
Reduced Loss of
Labor Costs Human Capital
Downsizing
Reduced Lower
Debt Costs Performance
Downscoping
Emphasis on Higher
Strategic Controls Performance
Leveraged
Buyout
High Debt Higher Risk
Costs