week 6- acquisitions and mergers Flashcards
merger
A strategy through which two firms agree to integrate their operations on a relatively coequal basis.(Examples: Orange & t Mobile merger in the UK; Kraft and Heinz merger
acquisition
A strategy through which one firm buys a controlling, or 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. (Unilever’s acquisition of Seventh Generation)
takeover
A special type of acquisition wherein the target firm does not solicit the acquiring firm’s bid; thus takeovers are unfriendly acquisitions. (Comcast attempted a takeover of Disney in 2004 and failed; Billionaire Investor Carl Icahn attempted takeover of Dell in 2013 and failed: Kraft succeeded to take over UK’s Cadbury in 2010). Takeovers happen to public companies that are traded in the stock market (privately owned companies→ no one can force them to sell)
Can takeover the company by buying the controlling number of shares or by a proxy battle
proxy battle
wheoevr wnats to takeover the company, they go to the public trying to influence the shareholders by communicating tp the public they would do a better job than the current management, puts pressure on board of directors to sell the company
why do an acquisition?
1) Reduce the number of competitors in a mature, highly fragenented or struggling industry (could be prevented cause of anti trust laws or industry consolidation)
2) Geographic expansion and overcoming entry barriers ( quebecs couche tard acquired norways stateoil who also had presence in eastern europe)
3) Reduction of cost and risk of new product development (acquiston as a substitute for r and d: apples acquisition of authentec, googles acquisition of android in 2005 for $50m)
4) Increased speed to market (walmart’s acquisition of kosmix to speed up entry into social e commerce)
5)Executing backward or forward integration strategy (acquiring a supplier or a buyer, delta airline acquired oil refinery)
6) Diversification into new products or markets (amazons acquisition of whole foods to enter physical grocery retail)
ex : when apple neutered apple music, they did it organically, not through an acquisition, if we dont have experience/core competencies may want to have an acquisition
7) pursuit of multipoint competition (acquisitions by energizer and royovac of razor companies to compete against gillette who previously acquired duracell)
Energizer and rayovac wanted to compete at the same point
8)Bring necessary human resources and expertise in the company (walmarts acquisition of jet.com to bring a former amazon’s executive on board)
We dont have the knowledge or experience
Have to compete against amazon so bought jet.com because of the ceo who used to be an executive at amazon
ANTI trust laws
The government can intervene by blocking an acquisition or a amerger if it is judged as damaging to fair competition and puts consumers at a disadvanatge
why do acquisitions fail
1) The most common: integration difficulties –> Clash of organizational cultures , Key strategic people leaving the acquired company, Lowered morale due to layoffs and imposed changes, Human politics interfering with effective cost cuts (wrong plants shutting down)
2) Overpaying for acquisition creates large or extraordinary debt that is not justified by returns
3) Misjudging potential synergies (often because of insufficient “due diligence” prior to acquisition)
4) A company becomes too large to manage effectively
integration srategies
absorption, preservation, transformation, reserves takeover and best of both
absorption
Take what you want from the company, absorb it
Buyer replaces the acquired company’s management, imposed acquiring company’s systems and standards
takes over the company completely
when does absorption work best
The acquirer doesn’t buy the brains of a company but rather its products and brands, When you don’t need the top management to stay, you are buying assets more than people or systems
when does preservation work best
both companies own different and independent parts of a supply chain
both contribute different competencies
the acquirer is a holding company and is diversifying its portfolio
its when the acquired company can keeps its management and culture
best of both
Buy but consider it a merger of equals. Look for best, practices in each company, create a new hybrid company.
Works best when: You are buying complementary skills, You need their people or systems, The overlap in products/services isn’t too large
transformation
Use the acquisition as a lever to reinvent both companies, both companies come together with different strategies, structures etc.re
combine+ reinvent
reverse takeover
Buy but let the management of the acquired company run the show. It will work if the acquired company is bigger and more experienced, so they should be put in charge.
Rare, but can be seen in some cross border acquisitions: an acquirer from a developing country buys a target in the U.S. or Europe.
This approach can also be used if an acquiring company is seeking to transition away from its core industry through acquisition
When we buy a company we have goals a purpose, want to control it, but it can happen that a company from an emerging company buys a company in the US fro example
different types of restructuring
downsizing, downscoping, leveraged buyouts
