Session 8: M&A and Strategic Alliances Flashcards
Strategic Management Process
see slide 3
What is M&A definition?
The consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisition.
What is the definition of an acquistion and merger?
Acquisition - one company purchases another outright
Merger - combination of two or more firms, which form a new legal entity under the banner for one corporate name
What are the types of M&A activities?
Related M&A:
1. Vertical M&A: Involves companies in the same supply chain but at different stages.
2. Horizontal M&A: Involves companies in the same industry and at the same stage.
3. Product Extension M&A: Involves companies with complementary or related products.
4. Market Extension M&A: Involves companies in the same industry but in different geographic markets.
Unrelated M&A:
1. Conglomerate
mergers and acquisitions that involve companies from different industries or business sectors. Unlike vertical or horizontal M&A, where the companies are either in the same supply chain or operate in the same industry, conglomerate M&A involves the combination of businesses with diverse and unrelated operations.
M&A Definitions and Terms for Acquirer, Target, Asset Acquisition, Share/Stock Deal, Emprire Building, Synergies, Friendly takeover, Hostile Takeover, Tender offers?
Acquirer: The firm that is purchasing a company in an acquisition – the
buyer.
Target: The firm that is being acquired (the seller).
Asset Acquisition: A form of acquisition in which the acquirer purchases
the assets of a target rather than its stocks.
Share/Stock Deal: The acquirer purchases all the shares of the target (and assumes all assets and liabilities).
Empire Building: An acquisition strategy motivated solely by perceived
increases in prestige or status implicit in company growth.
Synergies: Cost savings or revenue enhancements anticipated as the
result of a merger or acquisition.
Friendly Takeover: The board of directors and management of the target
company approve of the takeover. They will advise the shareholders to
accept the offer.
Hostile Takeover: The board of directors and management of the target
company do not approve of the takeover. They will advise the shareholders not to accept the offer.
Tender Offers: In a tender offer, one company offers to purchase the
outstanding stock of the other firm at a specific price rather than the market
price. The acquiring company communicates the offer directly to the other company’s shareholders, bypassing the management and board of
directors.
Integrative M&A Framework?
- M&A as an empirical phenomenon
-M&A strategies and theoretical reasons - M&A process
-Due diligence, Takeover tactics, Synergy calculation (all part of Value Calculation)
-Post-merger integration (part of value realization) - Evaluation of M&A success
M&A deals value by target country?
- USA attracted more than half of the total M&A value worldwide 2.5 trillion
M&A dominant Industries?
- Financials
- Materials
- Industrials
- telecommunications
- Media and entertainment
- Healthcare industry
Review M&A Activity in the pharma and
biotechnology industry
slides 14 to 18
Biggest M&A Deals in 2023
- Exxon Mobil – Pioneer
– In October, Exxon Mobil Corp. announced its all-stock $59.5 billion acquisition of
rival Pioneer Natural Resources Co., marking the largest deal put forward this
year. The deal is expected to close in the first half of 2024, and like other large
transactions, it will be subject to regulatory approvals. - Chevron – Hess
– Chevron Corp. announced its purchase of energy competitor Hess Corp. in an
all-stock transaction valued at $53 billion, rounding out the energy industry’s
success in a slow deals market. - Pfizer – Seagen
– Pfizer Inc. in March announced its plans to acquire cancer-drug maker Seagen
Inc. for $43 billion.
– The mega healthcare deal was a product of Pfizer’s generous cash holdings from
sales of Covid vaccines and therapies. Pfizer Chief Executive Officer Albert
Bourla told analysts last year the company planned to add $25 billion in revenue
through dealmaking by 2030. The deal brought Pfizer 85% to 90% of the way to
achieve that goal, according to David Lam, a corporate partner at Wachtell.
what are the logic and drivers for M&A in the pharmaceutical industry
Revenue losses by patent expirations leads to an increase in M&A, and severe price increases.
What is the high failure rate in M&A?
66-75 percent is the failure rate and 50% success rate
What are the M&A Strategies of Bower (2001)
see slide 24
- Overcapacity M&A
-increase market share
-eliminate overcapacity
-create more efficient operation
ex. automotive industry - Geographic Roll-Up M&A
-realize economies of scale and scope
-building of industry giants
-keep operating units locally
ex. Banc ONe buys local banks - Product or market extension M&A
-extension of product line
-extension of international coverage of the company
ex. GE and Nuovo Pignone - M&A as R&D
-acquistions as a substitute for in-house R&D to quickly build up a strong market position
-strengthening and extension of market share
ex. Microsoft; Roche - Industry convergence
-establish a position in a new market
ex. telecommunicaitons industry
What are the strategies and motives for Pharmaceutical M&A?
- Adaptive & Defensive Rationales
-combat increased profit pressures
-cut infrastructure costs
-Mainatain eranings growth in the face of pipeline problems
-Maintain competitive scale and scope
- Defence against acquisiton - Proactive & Offensive Rationales
-Gain access to foreign pharmaceutical markets
-Extend capabilities to new therapeutic areas
-Achieve economies of scale and scope in R&D, sales and marketing
-Create a competitive advantage in R&D productivity
-Foster disruptive change
Do M&A create value?
Related M&A Activity
value creation would be expected due to synergies between divisions
– economies of scale
– economies of scope
– transferring competencies
– sharing infrastructure
