8-1 © 2006 by Nelson, a division of Thomson Canada Limited. Chapter 8 Acquisition and Restructuring Strategies Chapter Eight
8-1© 2006 by Nelson, a division of Thomson Canada Limited.
Chapter 8
Acquisition and Restructuring Strategies
Chapter Eight
8-2© 2006 by Nelson, a division of Thomson Canada Limited.
Chapter 5Bus. - Level
Strategy
Chapter 6Competitive
Dynamics
Chapter 9International
Strategy
Chapter 10CooperativeStrategies
Chapter 8Acquisitions &Restructuring
Chapter 11Corporate
Governance
Chapter 12Structure& Control
Chapter 13Strategic
Leadership
Chapter 14Entrepreneurship & Innovation
Str
ateg
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Str
ateg
icA
ctio
ns
Str
ateg
ic O
utc
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esChapter 4Internal
Environment
Chapter 3External
Environment Strat. Intent
Strat. Mission
The Strategic Management .
Process
Strategy Formulation Strategy Implementation
Strategic Competitiveness
Chapter 1
Above Average Returns
Chapter 2 Feedback
Strategic Competitiveness
Chapter 1
Chapter 7Corp. - Level
Strategy
Chapter 5Bus. - Level
Strategy
Chapter 6Competitive
Dynamics
Chapter 8Acquisitions &Restructuring
The Strategic Management Process
8-3© 2006 by Nelson, a division of Thomson Canada Limited.
Acquisition and Restructuring StrategiesKnowledge Objectives:
1. Explain the popularity of acquisition strategies for firms competing in the global economy.
2. Discuss reasons firms use an acquisition strategy to achieve strategic competitiveness.
3. Describe seven problems that work against developing a competitive advantage using an acquisition strategy.
4. Name and describe attributes of effective acquisitions.
5. Define the restructuring strategy and distinguish among it’s common forms.
6. Explain the short-term and long-term outcomes of the different types of restructuring strategies.
8-4© 2006 by Nelson, a division of Thomson Canada Limited.
Merger:
A transaction where two firms agree to integrate their operations on a relatively co-
equal basis.
Mergers and Acquisitions
*
8-5© 2006 by Nelson, a division of Thomson Canada Limited.
Acquisition:
A strategy where one firm buys a controlling or 100% interest in another firm with the intent
of making the acquired firm a subsidiary within its portfolio.
Takeover:An acquisition where the target firm did not
solicit the bid of the acquiring firm.
Mergers and Acquisitions
8-6© 2006 by Nelson, a division of Thomson Canada Limited.
Horizontal Acquisition
The acquisition of a company competing in the same industry in which the acquiring firm competes.
Vertical AcquisitionA firm acquiring a supplier of distributor of one or more of it’s goods or services.
Related AcquisitionThe acquisition of a firm in a highly related industry.
8-8© 2006 by Nelson, a division of Thomson Canada Limited.
Pharmaceutical firms access new products through acquisitions of other drug manufacturers
Alcan’s purchase of Pechiney (Ch. 1 opening case)
Reasons for Acquisitions
Best Buys purchase of Future Shop
Increased Market PowerAcquisition intended to reduce the competitive balance of the industry
Overcome Barriers to EntryAcquisitions overcome costly barriers to entry which may make “start-ups” economically unattractive
Buying established businesses reduces risk of start-up ventures
Lower Cost & Risk of New Product Development
8-9© 2006 by Nelson, a division of Thomson Canada Limited.
Reasons for Acquisitions
Toronto’s Onex Corporation
British Telcom’s Acquisition of Ireland’s East Telecom
The Jim Pattison Group of Companies
Increased Speed to MarketClosely related to Barriers to Entry, allows market entry in a more timely fashion
Increasing Diversification and Competitive ScopeFirms may use acquisitions to restrict dependence on a single or a few products or markets
Avoiding Excessive CompetitionFirms may acquire businesses in which competitive pressures are less intense than in their core business
8-10© 2006 by Nelson, a division of Thomson Canada Limited.
Reasons for Acquisitions
The Jim Pattison Group of Companies
Angiotech: a Vancouver based research lab.
Learn & Develop New CapabilitiesAcquiring firms with new capabilities helps the acquiring firm to learn new knowledge and remain agile.
Reshape the firm’s competitive scopeReducing a firm’s dependence on specific markets alters the firm’s competitive scope.
8-12© 2006 by Nelson, a division of Thomson Canada Limited.
TransCanada’s acquisition of Nova Corp
Dynegy’s near purchase of Enron
TD Banks acquisition of Canada Trust
Problems with AcquisitionsIntegration Difficulties
Differing cultures may make integration of firms difficult.
Inadequate Evaluation of Target‘Winners Curse’ causes acquirer to overpay for firm.
Large or Extraordinary Debt
Costly debt can create onerous burden on cash outflows.
8-13© 2006 by Nelson, a division of Thomson Canada Limited.
Problems with Acquisitions
Vivendi’s purchase of Seagram Co. Ltd.
GE--prior to selling businesses and refocusing
Futurelink
Inability to Achieve SynergyJustifying acquisitions can increase estimate of expected benefits.
Overly DiversifiedAcquirer doesn’t have expertise required to manage unrelated businesses.
Managers Overly Focused on AcquisitionsManagers lose track of core business by spending so much effort on acquisitions.
Too LargeLarge bureaucracy reduced innovation & flexibility.
8-15© 2006 by Nelson, a division of Thomson Canada Limited.
Reducing scope of operations.Selectively divesting or closing non-core businesses.
Leads to greater focus.
Restructuring Activities
Agilient Technologies cutting of its workforce by 15,000 jobs
Telus cutting of its workforce by 6,000 jobs
Downscoping
DownsizingWholesale reduction of employees.
Leveraged Buyout (LBO)A party buys a firm’s entire assets in order to take the firm private.
Forsmann Little’s buyout of Dr. Pepper
8-16© 2006 by Nelson, a division of Thomson Canada Limited.
Downscoping
Downsizing
Lower Performance
Reduced Labour Costs
Loss of Human Capital
AlternativesShort-Term Outcomes
Long-Term Outcomes
Higher RiskHigh Debt Costs
LeveragedBuyout
Downsizing
Higher Performance
Reduced Debt Costs
Emphasis on Strategic Controls
Reduced Labour Costs
Loss of Human Capital
Lower Performance
Downscoping
Reduced Debt Costs
Restructuring and Outcomes
LeveragedBuyout