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Strategic Management: Concepts and Cases Part II: Strategic Actions: Strategy Formulation Chapter 7: Strategic Acquisition and Restructuring 1 The Strategic Management Process 2 Chapter 7: Strategic Acquisition and Restructuring Overview: Six content areas Popularity of acquisition strategies for firms competing in the global economy Why firms use acquisition strategies Seven problems working against developing a competitive advantage using an acquisition strategy Attributes(特性) of effective acquisitions Restructuring(重组) strategy vs. common forms Short & long-term outcomes(效果) of different restructuring strategies 3 Cross-Border(跨界) Acquisitions: Increased Trend Number of cross-border deals continues to increase in all corners of the world Acquisitions by emerging-country (新兴国家) firms occurring in developed countries, especially in the U.S., UK and Europe Developed economies have more open policies allowing emerging-country economies to make inroads, especially in more mature businesses including steel, aluminum and cement; or basic services such as management of airports and railroads, or infrastructure management, such as toll roads(收费公路) 4 5 Google’s acquisitions 6 Google’s acquisitions 7 Google’s acquisitions 8 Google’s acquisitions 2011-08-15 9 Chapter 7: Strategic Acquisition and Restructuring Overview: Six content areas Popularity of acquisition strategies for firms competing in the global economy Why firms use acquisition strategies Seven problems working against developing a competitive advantage using an acquisition strategy Attributes of effective acquisitions Restructuring strategy vs common forms Short & long-term outcomes of different restructuring strategies 10 Discuss Suppose you are a manager, how can you increase the market share of your firm? 11 Introduction: Popularity of M&A Strategies Popular strategy among U.S. firms for many years Can be used because of uncertainty in the competitive landscape Increase market power because of competitive threat Spread risk due to uncertain environment Shift core business into different markets Due to industry changes Intent: increase firm’s strategic competitiveness and value – the reality, however, is returns are close to zero 12 Introduction: Merger vs. Acquisition vs. Takeover (Cont’d) Merger(合并) Two firms agree to integrate their operations on a relatively co-equal basis Acquisition(收购) One firm buys a controlling, 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. Takeover(接管) Special type of acquisition strategy wherein the target firm did not solicit(请求) the acquiring firm's bid Hostile Takeover(恶意接管): Unfriendly takeover that is unexpected and undesired by the target firm 13 Pepsi’s acquisition of Tianfu 14 Reasons for Acquisitions (N = 7) 1. Increased market power Sources of market power include Horizontal Acquisitions(横向收购) Size of the firm, resources and capabilities to compete in the market and share of the market Acquirer and acquired companies compete in the same industry I.e., Geely’s acquisition of Volvo Vertical Acquisitions(纵向收购) Firm acquires a supplier or distributor of one or more of its goods or services; leads to additional controls over parts of the value chain I.e., Walt Disney Company’s acquisition of Fox Family Worldwide. Related Acquisitions(相关收购) Firm acquires another company in a highly related industry 15 Reasons for Acquisitions (N = 7) (Cont’d) 2. Overcoming entry barriers Cross-border acquisition: headquarters in different country 3. Cost of new product development and increased speed to market 4. Lower risk compared to developing new products 5. Increased diversification 6. Reshaping firm’s competitive advantage 7. Learning and developing new capabilities 16 P184 Reasons for Acquisitions and Problems in Achieving Succes 17 Chapter 7: Strategic Acquisition and Restructuring Overview: Six content areas Popularity of acquisition strategies for firms competing in the global economy Why firms use acquisition strategies Seven problems working against developing a competitive advantage using an acquisition strategy Attributes of effective acquisitions Restructuring strategy vs. common forms Short & long-term outcomes of different restructuring strategies 18 Problems in Achieving Acquisition Success (N = 7) 1. Integration(整合) difficulties 2. Inadequate evaluation of target 3. Large or extraordinary debt Junk bonds(垃圾债券): financing option whereby risky acquisitions are financed with money (debt) that provides a large potential return(heavy interest sometime) to lenders (bondholders) 19 Discuss What are the disadvantages of the firm with high debt? 20 Problems in Achieving Acquisition Success (N = 7) (Cont’d) 4. Inability to achieve synergy Synergy: Value created by units exceeds value of units working independently Achieved when the two firms‘ assets are complementary(互补) in unique ways Yields a difficult-to-understand or imitate competitive advantage Private synergy(独有的协同效应): Occurs when the combination and integration of acquiring and acquired firms' assets yields capabilities and core competencies that could not be developed by combining and integrating the assets with any other company 21 Problems in Achieving Acquisition Success (N = 7) (Cont’d) 5. Too much diversification Diversified firms must process more information of greater diversity Scope created by diversification may cause managers to rely too much on financial rather than strategic controls to evaluate performance of business units Acquisitions may become substitutes for innovation 22 Problems in Achieving Acquisition Success (N = 7) (Cont’d) 6. Managers overly focused on acquisitions Necessary activities with an acquisition strategy Search for viable(切实可行的) acquisition candidates Complete effective due-diligence(尽职调查)processes Prepare for negotiations Managing the integration process after the acquisition Diverts(偏离) attention from matters necessary for long-term competitive success (I.e., identifying other activities, interacting with important external stakeholders, or fixing fundamental internal problems) A short-term perspective and greater risk aversion(风险规避) can result for target firm's managers 23 Problems in Achieving Acquisition Success (N = 7) (Cont’d) 7. Too large Bureaucratic(官僚的) controls formalized controls decrease flexibility Additional costs may exceed the benefits of the economies of scale and additional market power Larger size may lead to more bureaucratic controls Formalized controls often lead to relatively rigid and standardized managerial behavior Firm may produce less innovation 24 25 Chapter 7: Strategic Acquisition and Restructuring Overview: Six content areas Popularity of acquisition strategies for firms competing in the global economy Why firms use acquisition strategies Seven problems working against developing a competitive advantage using an acquisition strategy Attributes of effective acquisitions Restructuring strategy vs. common forms Short & long-term outcomes of different restructuring strategies 26 Effective Acquisitions Complementary(互补的) assets or resources Friendly acquisitions facilitate integration of firms Effective due-diligence process (assessment of target firm by acquirer, such as books, culture, etc.) Financial slack Low debt position High debt can… Increase the likelihood of bankruptcy Lead to a downgrade in the firm’s credit rating Preclude(阻碍) needed investment in activities that contribute to the firm’s long-term success Innovation Flexibility and adaptability 27 Chapter 7: Strategic Acquisition and Restructuring Overview: Six content areas Popularity of acquisition strategies for firms competing in the global economy Why firms use acquisition strategies Seven problems working against developing a competitive advantage using an acquisition strategy Attributes of effective acquisitions Restructuring strategy vs. common forms Short & long-term outcomes of different restructuring strategies 28 Restructuring Restructuring defined: Firm changes set of businesses or financial structure Three restructuring strategies 1. Downsizing(精简) Reduction in number of firms’ employees (and possibly number of operating units) that may or may not change the composition of businesses in the company's portfolio 2. Downscoping (收缩) Eliminating businesses unrelated to firms’ core businesses through divesture(剥离), spin-off(分拆), or some other means 29 Restructuring (Cont’d) Three restructuring strategies (Cont’d) 3. Leveraged buyouts (LBOs) – (杠杆收购) One party buys all of a firm's assets in order to take the firm private (or no longer trade the firm's shares publicly) Private equity firm(私募基金公司): Firm that facilitates or engages in taking a public firm private Three types of LBOs Management buyouts(管理层收购) Employee buyouts Whole-firm buyouts Why LBOs? Protection against a capricious(善变的) financial market Allows owners to focus on developing innovations/bring them to market 30 A form of firm rebirth to facilitate entrepreneurial(企业家) efforts Restructuring Restructuring Outcomes Short-term Reduced costs: labor and debt Emphasis on strategic controls Long-term Loss of human capital(人力资本) Performance: higher/lower Higher risk 31 Restructuring and Outcomes P195 32 Task 1、Topic: page 197, 4 2、Read the text P176-183 33 Task 1、Read the text P207-212 34