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