financial per Flashcards
Term: Merger
Explanation:
a business combination where two or more companies come together to form a new entity. It involves negotiated deals, mutual negotiations, and is mostly friendly.
Term: Tender Offer
Explanation: A direct offer made by one company to the shareholders of another company to buy their shares at a specified price. It can be hostile when made without the approval of the target company’s board.
term: Acquisition
Explanation: A broad term that encompasses any deal where one company purchases another. It can include negotiated deals, tender offers, and can be either friendly or hostile.
Term: Corporate Restructuring
Explanation: Significant changes made to a company’s operations, policies, and strategies to improve its performance. It can include mergers, acquisitions, divestitures, layoffs, and other actions to enhance efficiency and adapt to market conditions.
Term: Horizontal Mergers
Explanation: Mergers or consolidations between companies in the same industry or business activity.
Term: Rationale for Horizontal Mergers
Explanation:
Economies of Scale: Cost savings achieved through larger-scale operations.
Economies of Scope: Benefits from combined utilization of resources and capabilities.
Synergies: Additional value created through the merger.
Term: Synergies
Explanation: Additional benefits resulting from the combination of two companies in a merger, such as cost savings, revenue growth, market expansion, or improved product offerings.
Term: Government Regulation of Horizontal Mergers
Explanation: Regulatory oversight due to concerns of potential anticompetitive effects. Government bodies review and may impose conditions or block mergers that harm competition and consumer welfare.
Term: Vertical Mergers
Explanation: Combinations between companies at different stages of the production or distribution process within an industry.
Term: Rationale for Vertical Mergers
Explanation:
Improve Information: Enhance information flow between different stages of production or distribution.
Lower Transaction Costs: Reduce costs associated with coordinating and managing relationships in the supply chain.
Reduce Lock-up Problems: Mitigate constraints on accessing critical inputs or distribution channels.
Term: Loss in Economic Discipline
Explanation: Risk associated with vertical mergers where a merged entity may become less motivated to seek cost-effective suppliers or innovate due to reduced competition.
Term: Vertical Mergers
Explanation: Combinations between companies at different stages of the production or distribution process within an industry.
Term: Traditional Justifications for Vertical Mergers
Explanation: As markets became more sophisticated and globalized, traditional justifications for vertical mergers lost relevance.
Term: Rebound of Vertical Integration
Explanation:
Simplicity: Customers desire well-integrated products and experiences (e.g., Apple).
Efficiency and Transaction Cost
Reduction: Vertical integration reduces transaction costs (e.g., Tesla).
Relationship Building with Customers: Vertical integration facilitates direct customer relationships (e.g., Amazon, Netflix).
Need for Speed: Vertical integration allows for faster response to market demands (e.g., Zara).
Geopolitical Uncertainty and the
Environment: Vertical integration addresses uncertainties and environmental concerns (e.g., Ferrero, Ikea, Disney).
Term: Conglomerate Mergers
Explanation: Combination of companies operating in unrelated business activities.
Term: Rationale for Conglomerate Mergers
Explanation:
Diversification: Achieving risk reduction by combining businesses in unrelated industries.
“Good Managers Can Manage Anything”: Belief that capable managers possess the skills to effectively manage businesses across diverse industries.
Term: Benefits of Conglomerate Mergers
Explanation:
Risk Reduction: Reduced exposure to industry-specific challenges by diversifying across multiple industries.
Increased Revenue Streams: Access to diverse sources of revenue from different industries.
Market and Technology Expansion: Opportunity to enter new markets or access new technologies.
Term: Challenges of Conglomerate Mergers
Explanation:
Market Navigation: Navigating unfamiliar markets and understanding diverse customer bases.
Managing Diverse Business Models: Handling different operational and strategic requirements across industries.
Resource Allocation: Allocating resources effectively across diverse businesses.
Term: Evolving Perspective
Explanation: Over time, the focus of mergers has shifted towards core competencies and strategic alignment.
Term: Nature of Strategy
Definition: Long-term plans, policies, and culture of an organization.
Purpose: Guides the organization towards its goals and objectives.
Classic successful strategies
– Low-cost leadership
→ Create a sustainable cost advantage over competitors
– Differentiation
→Distinguish the firm through innovation, product quality,…
– Focus or specialisation
→Find and dominate a market niche
Term: Strategic Planning Process
Explanation:
Dynamic Process: Ongoing and continuously adapting to changing circumstances.
Input Sources: Requires inputs from all segments of the organization.
Term: Integration of Acquisition and Restructuring
Explanation:
Alignment with Strategy: Acquisition and restructuring decisions should be part of the company’s overall strategic plans and processes.
Guiding Principles: Driven by the organization’s long-term goals and competitive positioning.
Term: Top Executive Responsibility
Explanation:
Role of Top Executive Group: Ultimate responsibility for strategic planning resides in the top executive group.
Leadership and Oversight: Senior leaders and executives provide direction, decision-making, and ensure alignment throughout the organization.
The three key steps in corporate strategic planning include the development of:
- A mission or vision
- A set of strategic objectives
- A set of tactics
what is The firm’s strategy
it is a plan for fulfilling the mission and achieving the strategic objectives. To be strategic = to look ahead!
Tactics are specific actions to implement the strategy, give three examples
− Expand the firm through organic or inorganic growth
− Divest segments of the firm
− Cooperate with other firms through licensing agreements
Examples of analytical tools for strategic planning
− SWOT analysis
Strengths, weaknesses, opportunities, threats
− BCG’s experience curve analysis
Cost per unit declines exponentially as cumulative production increases
− BCG’s product life cycle concept Development, growth, maturity, decline
Examples of analytical tools for strategic planning (continued)
− Porter’s five-factor model
what does the Economic attractiveness of industry depends on: (5)
- Barriers to entry
- Customer power
- Supplier power
- Threat of substitutes
- Rivalry conduct
