MGCR 423 Lecture Notes - Lecture 6: Duracell, Spectrum Brands, Ebay
18 Sep 2017
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Chapter 6 – Mergers and Acquisitions Strategies
1. Merger & Acquisition
Merger: A strategy through which two firms agree to integrate their operations on a relatively coequal basis.
(Example: Orange & T-Mobile merger in the UK).
Merger happened in overcrowded industry (mobile phone in UK)
- Industry was fragmented = market leader.
- Competing on price = price war (nobody is making money)
Mege = la off eause thee is alas dupliatio i futio fiaial dietos, …
Acquisition: A strategy through which one firm buys a controlling, or 100 percent interest in another firm with the
intent of making the acquired firm a subsidiary business within its portfolio. (Disney acquisition of ABC, Gillette
acquisition of Duracell, eBa’s auisitios, Tea’s auisitios.
- Subsidiary = Own management, structure and operation but still the revenue that it generates contribute
to the overall revenue of the corporation.
o PayPal is a subsidiary of eBay.
o Disney acquisition of ABC
- Synergies = must evaluate what synergy the acquired company will add value/revenue to the overall
portfolio of the corporate company
- When a company is acquired ➔ integration must happened in the parent company
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Takeover: A special type of acquisition heei the taget fi does ot soliit the auiig fi’s id; thus
takeovers are unfriendly acquisitions. (Comcast attempted a takeover of Disney in 2004 and failed).
- Company are become target for takeover are companies with unhappy SH, mismanagement, difficult
financial situation
- Value of the stock goes down and become affordable.
= allow the acquiring company to have the support of the SH.
Few ways for a take over:
• Buying a controlling way of the stock (replace the CEO, be a part of the boarder)
• Public announcement (accounting for SH support)
An acquiring company need to think about synergy = what value it gonna bring to the corporate
portfolio.
2. Reasons for acquisition
▪ To reduce the number of competitors in a mature or highly fragmented industry (AT&T tried to acquire T-
Mobile USA in 2011)
o Industry consolidation: in an overcrowded industry, M&A helps to consolidate and reduce the
number of competitors + preserve profit.
▪ Geographic expansion and overcoming entry barriers Quee’s Couhe-Tad auied Noa’s “tateoil-
2012)
o existing established firm = expand geographically in a safe way.
o Reduction of risk + knowledge of the market through the acquired company.
▪ Reduction of cost/risk of new product development and increased speed to market (acquisition as a
sustitute fo R&D: Apple’s auisitio of AutheTe i
o Apple use their own R&D to develop this technology (cost saving, pattern issue, the R&D process
has already been done)
o
▪ Diversification into new products or markets Gillette’s auisitio of Duaell, as opposed to ogaiall
developing a battery business from scratch) ➔ 2 ways to diversify
o Acquisition: choose a successful target and acquire it.
o Organically: Disney created it own cartoon subsidiaries.
▪ Pursuit of multipoint competition (acquisitions by Energizer and Rayovac to compete against Gillette in razor
market in addition to battery market)
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o eake the poe of ou opetitos: ou attak e o aket I’ll attak ou o ous. Weake
ou opetitos o ultiple aket. The ie gai aket poe.
The strategic reason behind the acquisition determines what Management needs to focus on to gain expected
results from the acquisition.
Strategic Objectives
Main concerns
The Overcapacity
M&A
The acquiring company (part of the
industry) w/ excess of capacity)
will eliminate capacity, gain
market share and create more
efficient operation.
• ege opa util ou’e rationalized it, so decide what
to eliminate quickly
• If the acquired company is as large as the acquiring one +
process and value are = toule ad o’t e eas.
• Mege of euals = oth opaies’
management groups to fight for control.
The Geographic
Roll-up M&A
A successful company expand
geographically; operating units
remain local.
• Member of the acquired group may welcome your streamline
processes. If = you can afford to ease them in slowly.
• Strong culture? Introduce new values w/ extreme care.
• These are win/win scenarios = they often go smoothly
The Product or
Market extension
M&A
Auisitios eted a opa’s
product line or its international
coverage.
• Know what your buying: the farther you get from home, the
harder it is to be sure.
• Expect cultural + gov to interfere with integration.
• The bigger you are relative to your target company, the
better chances for success.
• The more practice you have, the better chances for success.
The M&D as R&D
Acquisition are used in lieu of in-
house R&D to build a market
position quickly.
• Built industrial-strength evaluation process so that you buy 1st
class businesses.
• This category allows time for slow assimilation, so culture
due diligence is a MUST.
• Put well connected executive in charge of integration + high
visibility assignment.
The Industry
Convergence M&A
A company bets that a new
industry is emerging + tries to
establish a position by culling
resources from existing industries
chose boundaries are eroding.
• Integration should be driven by specific opportunities to
create a symmetrical organization.
• Top manager should be prepared to make the call about what
to integration and what to leave alone.
Be ready to change decision.
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find more resources at oneclass.com
