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Strategic Management:
Concepts and Cases
Part II: Strategic Actions: Strategy Formulation
Chapter 7: Strategic Acquisition and Restructuring
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The Strategic Management Process
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Chapter 7: Strategic Acquisition
and Restructuring
 Overview: Six content areas
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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
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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）
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Google’s acquisitions
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Google’s acquisitions
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Google’s acquisitions
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Google’s acquisitions
2011-08-15
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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
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Discuss
Suppose you are a manager,
how can you increase the market
share of your firm?
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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
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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
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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
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Pepsi’s acquisition of Tianfu
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Reasons for Acquisitions (N = 7)
 1. Increased market power
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Sources of market power include
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Horizontal Acquisitions（横向收购）
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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）
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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.
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Related Acquisitions（相关收购）

Firm acquires another company in a highly related industry
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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
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P184
Reasons for
Acquisitions
and Problems
in Achieving
Succes
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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
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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)
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Discuss
What are the disadvantages
of the firm with high debt?
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Problems in Achieving
Acquisition Success (N = 7)
(Cont’d)
 4. Inability to achieve synergy
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Synergy: Value created by units exceeds value of units
working independently
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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
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Problems in Achieving
Acquisition Success (N = 7)
(Cont’d)
 5. Too much diversification

Diversified firms must process more information of
greater diversity
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Scope created by diversification may cause managers
to rely too much on financial rather than strategic
controls to evaluate performance of business units
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Acquisitions may become substitutes for innovation
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Problems in Achieving
Acquisition Success (N = 7)
(Cont’d)
 6. Managers overly focused on acquisitions
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Necessary activities with an acquisition strategy
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Search for viable(切实可行的) acquisition candidates
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Complete effective due-diligence（尽职调查）processes
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Prepare for negotiations
Managing the integration process after the acquisition
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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)
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A short-term perspective and greater risk aversion(风险规避) can
result for target firm's managers
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Problems in Achieving
Acquisition Success (N = 7)
(Cont’d)
 7. Too large
 Bureaucratic（官僚的） controls
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formalized controls decrease flexibility
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Additional costs may exceed the benefits of the
economies of scale and additional market power
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Larger size may lead to more bureaucratic controls
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Formalized controls often lead to relatively rigid and
standardized managerial behavior
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Firm may produce less innovation
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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
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High debt can…
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Increase the likelihood of bankruptcy
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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
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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
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1. Downsizing（精简）
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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
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Restructuring
(Cont’d)
 Three restructuring strategies (Cont’d)
3. Leveraged buyouts (LBOs) – （杠杆收购）
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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
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 A form of firm rebirth to facilitate entrepreneurial（企业家） efforts
Restructuring
 Restructuring Outcomes
 Short-term
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Reduced costs: labor and debt
Emphasis on strategic controls
Long-term
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Loss of human capital（人力资本）
Performance: higher/lower
Higher risk
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Restructuring and Outcomes P195
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Task
1、Topic: page 197, 4
2、Read the text P176-183
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Task
1、Read the text P207-212
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