Acquisition, Mergers & Strategic

Alliances
Presented By:
Shweta Gupta (A-15)
Disha Lunagariya (A-25)
Ankit Mehta(A-29)
Ankit Pansuria(A-35)
Milap Udani(A-57)
Mergers, Acquisitions, and Takeovers:
Types Of Acquisitions
 Reasons for Acquisitions
Increased
market power
Learning and (Nestle’-Gerber) Overcoming
developing entry barriers
new capabilities (Walmart, Bharti)

Reshaping firm’s Making an Cost of new product

Acquisition development
competitive scope
(pepsico & Tropicana)

Increased
Diversification Increase speed
P&G - Gillete Lower risk than to market
developing new
products
Problems in Achieving Acquisition
Success
Integration
difficulties
Too large Inadequate
Tata - Corus target evaluation

Problems
Managers with
overly focused on Acquisitions Extraordinary debt
acquisitions (TATA, jaguar)

Too much Inability to

diversification achieve synergy
 Effective Acquisition Strategies
Complementary Buying firms with assets that meet
Assets /Resources current needs to build competitiveness.

Friendly Friendly deals make integration go more

Acquisitions smoothly.

Careful Selection Deliberate evaluation and negotiations

Process are more likely to lead to easy
integration and building synergies.

Maintain Financial Provide enough additional financial

Slack resources so that profitable projects
would not be foregone.
Attributes of Effective Acquisitions
Attributes Results
Low-to-Moderate Merged firm maintains
Debt financial flexibility

Sustain Continue to invest in R&D

Emphasis as part of the firm’s overall
on Innovation strategy

Flexibility Has experience at

managing change and is
flexible and adaptable
 Restructuring
• A reduction in the number of a firm’s
Downsizing employees and sometimes in the
number of its operating units.
– May or may not change the
composition of businesses in the
company’s portfolio.
• Typical reasons for downsizing:
– Expectation of improved
profitability from cost reductions
– Desire or necessity for more
efficient operations
– Ex. Tata – Corus/jaguar landover
 Restructuring
A divestiture, spin-off or other means of
Downsizing eliminating businesses unrelated to a firm’s
core businesses.
A set of actions that causes a firm to
Downscoping strategically refocus on its core businesses.
May be accompanied by downsizing, but
not eliminating key employees from its
primary businesses.
Smaller firm can be more effectively
managed by the top management team.
Ex. TATA Lakme – HLL
 Ex. UB Group
 Restructuring
A restructuring strategy whereby a party
buys all of a firm’s assets in order to take
the firm private.
Significant amounts of debt may be
Downsizing
incurred to finance the buyout.
Immediate sale of non-core assets to
pare down debt.
Downscoping
Can correct for managerial mistakes
Managers making decisions that
Leveraged serve their own interests rather than
Buyouts those of shareholders.
Can facilitate entrepreneurial efforts and
strategic growth.
 Cooperative Strategy
• Cooperative Strategy
– A strategy in which firms work together to achieve
a shared objective.
• Cooperating with other firms is a strategy
that:
– Creates value for a customer.
– Exceeds the cost of constructing customer value in
other ways.
– Establishes a favorable position relative to
competitors.
 Strategic Alliance
• A primary type of cooperative strategy in
which firms combine some of their resources
and capabilities to create a mutual
competitive advantage.
– Involves the exchange and sharing of resources
and capabilities to co-develop or distribute goods
and services.
– Requires cooperative behavior from all partners.
– Ex. Adani - Reliance
 Strategic Alliance

Firm A Firm B
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies
Combined
Resources
Capabilities
Core Competencies

Mutual interests in designing, manufacturing,

or distributing goods or services
Types of Strategic Alliances
 Reasons for Strategic Alliances
Market Reason
Slow Cycle • Gain access to a restricted
market
• Establish a franchise in a new
market
• Maintain market stability (e.g.,
establishing standards)
 Reasons for Strategic Alliances
Market Reason
Fast Cycle • Speed up development of new
goods or service
• Speed up new market entry
• Maintain market leadership
• Form an industry technology
standard
• Share risky R&D expenses
• Overcome uncertainty
• AMA-IGNU
 Reasons for Strategic Alliances
Market Reason
Standard Cycle • Gain market power (reduce
industry overcapacity)
• Gain access to complementary
resources
• Establish economies of scale
• Overcome trade barriers
• Meet competitive challenges from
other competitors
• Pool resources for very large
capital projects
• Learn new business techniques
Business-Level Cooperative
Strategies
Corporate-Level Cooperative Strategy
• Corporate-level Strategies
Help the firm diversify in terms of
 Products offered to the market
 The markets it serves
 Require fewer resource commitments.
Permit greater flexibility in terms of efforts to
diversify partners’ operations.
 Diversifying Strategic Alliances
• Allows a firm to expand into new
Diversifying
product or market areas without
Strategic Alliance completing a merger or an acquisition.
• Provides some of the potential
synergistic benefits of a merger or
acquisition, but with less risk and
greater levels of flexibility.
• Permits a “test” of whether a future
merger between the partners would
benefit both parties.
 Synergistic Strategic Alliances
Diversifying • Creates joint economies of
Strategic Alliance scope between two or more
firms.
Synergistic • Creates synergy across multiple
Strategic Alliance functions or multiple businesses
between partner firms.
 Franchising
• Spreads risks and uses resources,
Diversifying capabilities, and competencies
Strategic Alliance without merging or acquiring another
company.
Synergistic • A contractual relationship (the
Strategic Alliance franchise) is developed between two
parties, the franchisee and the
franchisor.
Franchising • An alternative to pursuing growth
through mergers and acquisitions.
 International Cooperative
Strategies
• Cross-border Strategic Alliance
– A strategy in which firms with headquarters in
different nations combine their resources and
capabilities to create a competitive advantage.
– A firm may form cross-border strategic alliances to
leverage core competencies that are the
foundation of its domestic success to expand into
international markets.
 International Cooperative
Strategies (cont’d)
• Synergistic Strategic Alliance
– Allows risk sharing by reducing financial investment.
– Host partner knows local market and customs.
– International alliances can be difficult to manage due to
differences in management styles, cultures or regulatory
constraints.
– Must gauge partner’s strategic intent such that the partner
does not gain access to important technology and become a
competitor.
 Network Cooperative Strategy
• A cooperative strategy wherein several firms
agree to form multiple partnerships to achieve
shared objectives.
– Stable alliance network
– Dynamic alliance network
• Effective social relationships and interactions
among partners are keys to a successful
network cooperative strategy.
Network Cooperative Strategies
(cont’d)
Stable Alliance • Long term relationships that
Network often appear in mature
industries where demand is
relatively constant and
predictable
• Stable networks are built for
exploitation of the economies
(scale and/or scope)
available between the firms
Network Cooperative Strategies
(cont’d)
Stable Alliance • Arrangements that evolve in
Network industries with rapid
technological change leading
Dynamic Alliance to short product life cycles.
Network • Primarily used to stimulate
rapid, value-creating product
innovation and subsequent
successful market entries.
• Purpose is often exploration
of new ideas