Presentation Transcript
Slide1: Mergers and Acquisitions Merger A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage Acquisition A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of businesses Takeover An acquisition where the target firm did not solicit the bid of the acquiring firm
The value of M&A strategies: The value of Mandamp;A strategies NPV(A) = net present value of firm A as a stand-alone entity
NPV(B) = net present value of firm B as a stand-alone entity
NPV(A+B) = net present value of firms A and B as a combined entity
P = NPV(A+B) – NPV(A) any price for a target (i.e., B) less than P will be a source of an above-normal economic profits for the bidding firm (A).
Potential sources of strategic relatedness between bidding and target firms: Potential sources of strategic relatedness between bidding and target firms Synergies: NPV(A+B)andgt;NPV(A)+NPV(B)
Technical economies: physical processes inside a firm are altered so that the same amounts of input produce higher quantity of outputs.
Pecuniary economies: the ability of firms to dictate prices by exerting market power
Diversification economies: lowering risks relative to its performance.
Possible motivations to engage in M&As: Possible motivations to engage in Mandamp;As Overcome Barriers to Entry (over capacity)
Lower Cost and Risk of New Product Development
Speedy entry
Reduce dependence on a few input or product markets
Increase market power
Diversification
Free cash flow
Agency problems
Managerial hubris (unrealistic relief held by managers in bidding firms that they can manage the target firms more efficiently than can the target’s current management).
Rules of bidding firm managers: Rules of bidding firm managers Search for synergies
Keep information away from other bidders
Keep information away from targets
Avoid winning bidding wars
Slide6: Problems with Acquisitions Example: Marks and Spencer’s acquisition of Brooks Brothers Example: AgriBioTech’s acquisition of dozens of small seed firms
Slide7: Example: Quaker Oats and Snapple Example: GE--prior to selling businesses and refocusing Problems with Acquisitions
Slide8: Attributes of Effective Acquisitions
Slide9: Attributes of Effective Acquisitions
Slide10: Example: Procter andamp; Gamble’s cutting of its worldwide workforce by 15,000 jobs Restructuring Activities Example: Disney’s selling of Fairchild Publications
Slide11: Leveraged Buyout (LBO) A party buys a firm’s entire assets in order to take the firm private. Example: Forsmann Little’s buyout of Dr. Pepper Restructuring Activities
Slide12: High Debt Costs Emphasis on Strategic Controls Downscoping Leveraged
Buyout Reduced Debt Costs Higher Performance Higher Risk Downsizing Reduced Labor Costs Loss of
Human Capital Lower Performance Alternatives Short-Term Outcomes Long-Term Outcomes Restructuring and Outcomes