Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Entrepreneurship in M & As (p.318)Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22Target Response Strategies to a Takeover AttemptSlide 24Slide 25Slide 26Slide 27Mergers and Mergers and AcquisitionsAcquisitionsCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 10-10-11Chapter 10Chapter 10Mergers & AcquisitionsStrategic Management & Competitive Advantage – Barney & Hesterly2Mergers and AcquisitionsMergers and AcquisitionsCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 10-10-22Mission ObjectivesExternalAnalysisInternalAnalysisStrategicChoiceStrategyImplementationCompetitiveAdvantageThe Strategic Management ProcessCorporate LevelStrategyWhich Businessesto Enter?• Vertical Integration• Diversification• Strategic AlliancesMode of Entry?• Mergers & AcquisitionsMergers & AcquisitionsStrategic Management & Competitive Advantage – Barney & Hesterly3Mergers and AcquisitionsMergers and AcquisitionsCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 10-10-33Logic of Corporate Level Strategy AppliesCorporate level strategy should create value:2) such that businesses forming the corporate wholeare worth more than they would be under independent ownership3) that equity holders cannot create throughportfolio investing 1) such that the value of the corporate whole increasesMergers & AcquisitionsStrategic Management & Competitive Advantage – Barney & Hesterly4Mergers and AcquisitionsMergers and AcquisitionsCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 10-10-44Mergers & Acquisitions DefinedMergers Acquisitions• two firms are combined ona relatively co-equal basis• one firm buys anotherfirm• the words are often used interchangeably eventhough they mean something very different• merger sounds more amicable, less threateningMergers & AcquisitionsStrategic Management & Competitive Advantage – Barney & Hesterly5Mergers and AcquisitionsMergers and AcquisitionsCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 10-10-55• parent stocks are usuallyretired and new stock issued• name may be one of the parents’ or a combination• can be a controllingshare, a majority, or all of the target firm’sstock• can be friendly orhostileMergers AcquisitionsMergers & Acquisitions Defined• usually done througha tender offer• one of the parents usuallyemerges as the dominantmanagementMergers & AcquisitionsStrategic Management & Competitive Advantage – Barney & Hesterly6Mergers and AcquisitionsMergers and AcquisitionsCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 10-10-66Mergers & Acquisitions DefinedTypes of M&A ActivityFTC CategoriesVerticalHorizontalProduct ExtensionMarket ExtensionConglomerate» suppliers or customers» competitors» complementary products» complementary markets» everything elseRelatedUnrelatedMergers & AcquisitionsStrategic Management & Competitive Advantage – Barney & Hesterly7Mergers and AcquisitionsMergers and AcquisitionsCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 10-10-77Do Mergers and Acquisitions Create Value?The LogicUnrelated M&A Activity• there would be no expectation of value creationdue to the lack of synergies between businesses• there might be value creation due to efficienciesfrom an internal capital market• there might be value creation due to the exploitationof a conglomerate discount• a corporate raider who buys and restructures firmsMergers & AcquisitionsStrategic Management & Competitive Advantage – Barney & Hesterly8Mergers and AcquisitionsMergers and AcquisitionsCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 10-10-88Do Mergers and Acquisitions Create Value?The LogicRelated M&A Activity• value creation would be expected due tosynergies between divisions• economies of scale• economies of scope• transferring competencies• sharing infrastructure, etc.Mergers & AcquisitionsStrategic Management & Competitive Advantage – Barney & Hesterly9Mergers and AcquisitionsMergers and AcquisitionsCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 10-10-99Do Mergers and Acquisitions Create Value?The Empirical Evidence• this reflects the market’s assessment of theexpected value of the merger or acquisition• these studies look at what happens to the priceof both the acquirer’s stock and the target’s stock• thus, we can see who is capturing any expectedvalue that may be createdResearch is based on stock market reaction to the announcement of M&A activityMergers & AcquisitionsStrategic Management & Competitive Advantage – Barney & Hesterly10Mergers and AcquisitionsMergers and AcquisitionsCopyright © 2006