Chapter 12: Mergers & acquisitions

Question 1

What is a merger?

Answer 1

Two firms amalgamate to form a new company.

Question 2

What is a strategic alliance? Give an example.

Answer 2

Two or more organisations share resources and activities to pursue a common strategy, with none or only partial changes in ownership, so its not a merger or acquisition.

An example of a strategic alliance is the partnership between Starbucks and PepsiCo. In this alliance, Starbucks teamed up with PepsiCo to create and distribute ready-to-drink coffee beverages like bottled Frappuccinos. Starbucks had the brand strength and coffee expertise, while PepsiCo brought its experience in distribution and marketing of bottled beverages. This partnership allowed Starbucks to expand its reach in the bottled coffee market globally without building its own distribution network, while PepsiCo benefited from Starbucks’ brand appeal.

Question 3

What are the three motives for M&A?

Answer 3

1. Managerial motives
   - personal ambition
   - bandwagon effects
2. Financial motives
   - finanical efficiency
   - tax efficiency
   - asset stripping or unbundling
3. Strategic motives (improving the competitive advantage of the organization)
   - Horizontal M&A: economies of sale and market power
   - Geographical extension M&A, to enter overseas market
   - Vertical M&A, to acquire supplier or customer
   - Diversifying M&A, to enter a new area of business

Question 4

How can you expand the scope of the firm?

Answer 4

1. Organically
2. Outside alliance
3. Merge or acquire

Question 5

Which are the five principal advantages to relying on organic development?

Answer 5

1. Knowledge and learning
2. Spreading investment over time
3. No availability constraints
4. Strategic independence
5. Culture management

Question 6

Which are the three M&A contexts?

Answer 6

1. Historical
2. Geographical
3. Organizational

Question 7

What are the two main kinds of strategic alliances?

Answer 7

1. Equity alliances
   most common one is a joint venture
2. Non-equity alliances
   one common one is franchising

Question 8

What are the 4 motives for strategic alliances?

Answer 8

1. Scale
2. Access
3. Complementary
4. Collusive

Question 9

What are the key success factors for M&A?

Answer 9

1. Strategic fit
2. Organisational fit
3. Valuation