Article summary
WPC480 Strategic Management
Topic 7: Corporate-level Strategy (Mergers & Acquisitions)
Professor R. Scott Livengood
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Big Question Question
How can mergers and acquisitions work as a vehicle for corporate diversification?
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Behind Disney’s Play for Fox: Determination to Beat Netflix
Explore Disney’s motivation to acquire Fox. What does it have to gain and what will this transaction allow Disney to do?
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CVS to Buy Aetna for $69 Billion, Combining Major Health-Care Players
What were the motivations of each firm (CVS and Aetna) to pursue this merger?
What apparent synergies do CVS and Aetna share?
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Terminology
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Merger (of “equals”)
Two firms agree to integrate their operations on a relatively co-equal basis
Acquisition
One firm buys a controlling interest in another firm to include in portfolio
Takeover
An unsolicited and sometimes reluctant acquisition
Reasons for Acquisitions
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Increase market power
Growth
Reduce costs
Increase differentiation
Pre-empt moves by rivals
Reshape competitive scope
Overcome entry barriers
Cross-border challenges
Accessing new technology
Increase speed of entry
Reduces risk of new product development
Increase capabilities and core competencies
Speed down learning curve
Alternative to building internally
Stages of Acquisition Process
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Partner selection & due diligence
Alliance design and governance
Post-acquisition integration
Challenges with Acquisitions
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Partner selection
Improper motivations for acquisition
Inadequate target evaluation
Musical chairs
Alliance design
Valuing target
Negotiating terms
Winner’s curse
Integration
Clashing cultures/systems
Achieving desired synergies
Managing larger firm complexity
Effective Acquisition Strategies
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Careful selection/due diligence process
Complementary assets/resources
Friendly acquisitions
Maintain financial slack
Continue R&D and innovation
Prioritize post-acquisition integration
Summary
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Complex transactions that must be fully analyzed
Pre- and post-acquisition periods of equal importance
Acquisitions are a vehicle for firms to diversify