8) ALTERNATIVES TO M&A; CORPORATE RESTRUCTURING Flashcards
because empirical research is mixed as to whether MandA leads to shareholder value creation, what’s an alternative?
strategic alliances
What is deal design aimed to achieve?
1) create value
2) create long-term sustainable strategic advantage (Porters 5 forces idea)
3) avoid dilution (or unwanted concentration)
4) manage market signals
5) enhance governance and organisation structure
why is price super important when looking at deal design?
if you pay too much it’s a negative NPV investment!
Successful negotiations require info on ….. because……
strengths/weaknesses of the parties
–> need to come up with deal that is likely to be successful at the MIN cost
Bid strategy - Acquirer’s perspective
1) must pre-empt target’s reaction
2) expect target to evade
3) assess reaction of other stakeholders and rivals
4) create/seek out opportunities
5) be aware of being taken advantage of (behavioural economics, biases, human error stuff)
in terms of bid strategy, can the target be pre-emptive?
Yes, if they want to be taken over, can set themselves up to make it easy for a bid to work. (if don’t want to be taken over, can do defence tactics instead)
what factors influence the price?
1) friendly or hostile bid
2) form of payment
3) capital structure in post-merged entity
4) regulation and practicalities
5) deal financing
6) method of acquisition
other stakeholders that can influence deal design
employees, public opinion, customers, key contracts
other issues that can influence deal design
1) special statutes
2) existing shareholders (dispersion, concentration and toe-hold stakes, capital structure and constitution restrictions)
why are alternative forms of inorganic growth needed?
1) MandA may not meet expectations of managers and shareholders (overpayment, difficulty in post-merger integration)
2) MandA may not be feasible (regulatory limits, cost and financing limits)
3) MandA may not be desirable (value in remaining independent)
alternatives to MandA
strategic alliance between firms –> a middle ground between strict, arm’s lentgh independence and outright integration (MandA)
- cooperate on a project or specific business area through coordination of skills and resources
can alternatives to MandA still have similar objectives to it?
YES
1) shared resources and capabilities
2) cost reduction
3) risk reduction
4) market access
5) overarching goal again is to create value for shareholders
types of strategic alliances
2) marketing/distribution agreements
3) agreement to provide technical services
4) management contracts
7) joint ventures
1) supply/purchase agreements
locking in supply of various components of a project you don’t possess yourself
2) marketing/distribution agreements
working together to sell something or using existing channels/sales forces to sell the product
because MandA is RISKY AND FOREVER, how can firms access the resources and capabilities of other companies w/o MandA? 4 ways:
1) contractual relationship
2) other alliances
3) joint venture
4) minority stake
1) contractual relationship
least committed inorganic growth strategy –> partners agree to ongoing arrangement (eg to buy/sell) possibly with exclusivity but maintaining independence and distinction of activities and resources
examples of contractual relationships
a) licensing methods, technology, design processes, patents;
b) joint purchasing agreements;
c) franchises
2) other alliances
more serious than a contractual relationship as generally involves exchange or pooling of resources. Importantly:
1) organisations remain independent
alliances can be seen as
joining of forces and resources for a specified/indefinite period BUT with intention of working towards a common objective
3) join venture
creates a separate entity in which both parties invest subject to a JV agreement, specifying how and over what time period revenues, expenses assts and control of a single project are shared
