FINC3013 Lecture Notes - Lecture 4: Horizontal Integration, Takeover, Risk Aversion
31 Jul 2018
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Finc3013 mergers and acquisitions: cash cow: a business with high market share and low growth. Low ongoing investment to sustain the business: net provider of cash, within multi-business firm, often milked to support growth of other divisions, dog: a business with low growth and low market share. Low-cost leadership: create a sustainable cost advantage over competitors. Classic successful strategies: differentiation: distinguish firm through innovation, market segmentation, product quality, etc, focus / specialisation: find and dominate a market niche. Joi(cid:374)t (cid:448)e(cid:374)tures are (cid:373)ore likely (cid:449)he(cid:374) the risk of the (cid:448)e(cid:374)ture > risk of fir(cid:373)(cid:859)s (cid:272)ore (cid:271)usi(cid:374)ess. Joint ventures often involve staged investments: firms in general realise significantly positive abnormal returns upon the announcement of strategic alliances, joint ventures, and minority investments. Diversification versus focus: main theories on value of diversification versus focus (in)efficiency of internal capital markets: diversification = closer proximity, better information but profitable units might subsidise unprofitable units (moral hazard problem)
