Cheat Sheet for Strategic Management

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M&A & Restructuring Strategies. Merger: Two Firms agree to integrate operations on relatively equal basis(usually 1 dominates another in mkt share/size/asset value) Hostile takeover: (delivers higher shareholder value than friendly acquires)(Preannouncement returns of hostile takeover anticipated with increase in bidder & target's share price). Diversification creates value by using excess resource. Restructuring used to correct with ineffective mergers/acquisitions. M&A used as means of growth to potentially lead to strategic competitiveness. △ing ext env affect type of M&A used. M&A used cuz of uncertainty in competitive l&scape. 1)Increase market power due to competitive threat 2)Spread risk due to uncertainty 3)Shift core biz to diff mkts 4)Manage industry & regulatory △s. --> Increases strategic competitiveness & value. Shareholders of acquired firm earn above avg returns while shareholders of acquiring firm earn ~0 returns. Reflects investors' scepticism of projected synergies. Reasons for Acquisition 1)Increased mkt power(horizontal,vertical,related, sbjct to regulatory review & financial mkt analysis)able to sell good/service above competitive levels/costs of its primary or support activities lower than competitors.Buy competitor/supplier/distributer to Increase size, resource & capabilities. Horizontal Acq helps to exploit cost-based & revenue synergies.Better Most effective when integrate assets with acqed firm.Vertical Acqsitions controls additional parts of value chain.(CVS/Caremark)Related acquisitions(acqing firm in related industry). Create value thru synergy by integrating resource & capabilities. 2)Overcome entry barriers.Help gain immediate access to international markets. Higher the barrier, higher chance firm will acquire. 3)Cross-border acquisitions(made btwn companies with HQs in diff ctys) global M&A declined in financial crisis.Chinese companies seek horizontal cross-border acqtns of natural resource.India seek access to pdt innovation capabilities & new br&s/distribution channels. 4)Cost of new product development & increased speed to mkt. Gain access to new pdts & to current pdts new to firm.Pharmaceutical firms. 5)Lower risk than developing new products. Acquisitions may become a substitute for innovation.Acquisitions shld always be strategic than defensive 6)Increased Diversification. Diff for companies to develop pdts that differ from current lines for mkts in which they lack experience. Acquisition strategies used to support unrelated & related diversification stgies. More related firms are, greater prob acq is successful. Horizontal & related acqs contribute more to strategic competitiveness. Cisco.7)Avoid excessive competition 8)Reshaping firm's competitive scope(Lessen dependence on specific mkts) 9)Learn & developing new capabilities. Broadens their knowledge base & reduce inertia. Acquire good talent through cross-border acqtns. Seek to acquire diff but related & complementary capabilities to build own knowledge base. Biological Drugs, AstraZeneca. Problems in achieving Acquisition success Greater success accrues to (select right target, avoid high premium by doing due dilligence, integrate operations,retain human capital to underst& target firm's operations) 1)Integration difficulties (cultures,diff financia & control systems, working relationships, resolve problems of status of acqed firm's executives) 2)Inadequate evaluation of target. Due diligence - Potential acquirer evaluates target firm for acquisition. Done by investment bankers,accountatnts,lawyers,mgmt consultants. Without due dilligence, purchase price is made by pricing of other 'comparable' acquisitions than rigorous assessment of where,when,how mgmt can drive real perf gains. "bidding war" 3)Large & Extraordinary debt. Firms increase debt to finance acqtns. E.g.Junk Bonds. High debt increases chance of bankruptcy, downgrading credit rating & firm may divest some assets to relieve burden to remain solvent. 4)Inability to...
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