PRESENTATION ON ACQUISITION AS STRATEGY

PRESENTED Master subtitle style Click to edit BY:VAIJANTI YADAV 20100150

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Acquisitions
Acquisition: a strategy through which one firm
buys a controlling interest in another firm with the intent of making the acquired firm a subsidiary business within its own portfolio

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EXAMPLE OF ACQUISITION
TATA-CORUS Tata acquired Corus which is four time larger than

its size and the largest steel producer in U.K.The deal which creates the worlds fifth largest steel maker ,is Indias largest ever foreign takeover and follows Mittals steel $31 billion acquisition of rival Arcellor in the same year. of $ 12 billion .The price per share was 608 pence, which is 33.6% higher than the first over which was 455 pence.

Tata acquired Corus on the 2nd of April for a price

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Reasons for Making Acquisitions

Increase market power Learn and develop new capabilities Reshape firms competitive scope

Overcome entry barriers

Acquisit ions

Increase diversification

Cost of new product development

Increase speed to market

Lower risk compared to developing new products

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Reasons for Making Acquisitions: Increased Market

Factors increasing market power
when a firm is able to sell its goods or services

Power

above competitive levels or

when the costs of its primary or support

activities are below those of its competitors

usually is derived from the size of the firm and

its resources and capabilities to compete

Market power is increased by

horizontal acquisitions
4/23/12 vertical

acquisitions

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Reasons for Making Acquisitions: Overcome Barriers to

Entry
Barriers to entry include
economies of scale in established competitors differentiated products by competitors enduring relationships with customers that

create product loyalties with competitors

acquisition of an established company

may be more effective than entering the

market as a competitor offering an unfamiliar good or service that is unfamiliar to current buyers 4/23/12 66

Reasons for Making Acquisitions: Cost of New Product

Development and Increased Speed to Market Significant investments of a firms
resources are required to
develop new products internally introduce new products into the marketplace

Acquisition of a competitor may result in

lower risk compared to developing new products increased diversification reshaping the firms competitive scope learning and developing new capabilities faster 4/23/12

market entry

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Reasons for Making Acquisitions: Lower Risk Compared to

Developing New Products
An acquisitions outcomes can be

estimated more easily and accurately compared to the outcomes of an internal product development process acquisitions as lowering risk

Therefore managers may view

Example: Watson Pharmaceuticals

acquisition of TheraTech
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Reasons for Making Acquisitions: Increased

Diversification
It may be easier to develop and introduce

new products in markets currently served by the firm

It may be difficult to develop new

products for markets in which a firm lacks experience

it is uncommon for a firm to develop new

products internally to diversify its product lines

acquisitions are the quickest and easiest way

to diversify a firm and change its portfolio of businesses. 4/23/12 99

Reasons for Making Acquisitions: Reshaping the Firms

Competitive Scope
Firms may use acquisitions to reduce

their dependence on one or more products or markets specific markets alters the firms competitive scope.

Reducing a companys dependence on

Example: General Electrics acquisition of NBC

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Reasons for Making Acquisitions: Learning and Developing New

Capabilities
Acquisitions may gain capabilities that

the firm does not possess

Acquisitions may be used to

acquire a special technological capability broaden a firms knowledge base reduce inertia

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Problems With Acquisitions

Integration difficulties Inadequate evaluation of target

Resulting firm is too large

Acquisiti ons

Managers overly focused on acquisitions Too much diversification

Large or extraordinary debt Inability to achieve synergy

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Problems With Acquisitions Integration

Integration challenges include
melding two disparate corporate cultures linking different financial and control systems building effective working relationships

Difficulties

(particularly when management styles differ) newly acquired firms executives.

resolving problems regarding the status of the

division 4/23/12

Example: Intels acquisition of DECs semiconductor

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Problems With Acquisitions Large or

Firm may take on significant debt to

Extraordinary Debt
acquire a company

High debt can

increase the likelihood of bankruptcy lead to a downgrade in the firms credit rating preclude needed investment in activities that

contribute to the firms long-term success.

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Example: AgriBioTechs acquisition of

of small seed firms

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Problems With Acquisitions Inability to Achieve

Synergy exists when assets are worth

Synergy

more when used in conjunction with each other than when they are used separately
Firms experience transaction costs (e.g.,

legal fees) when they use acquisition strategies to create synergy

Firms tend to underestimate indirect costs

of integration when evaluating a potential acquisition.

Example: Quaker Oats and Snapple 1515 4/23/12

Problems With Acquisitions Too Much

Diversified firms must process more

Diversification

information of greater diversity

Scope created by diversification may

cause managers to rely too much on financial rather than strategic controls to evaluate business units performances
Acquisitions may become substitutes for

innovation.

Example: GE--prior to selling businesses

and 4/23/12

refocusing

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Problems With Acquisitions Focused on Managers Overly

Managers in target firms may operate in a

Acquisitions

state of virtual suspended animation during an acquisition

Executives may become hesitant to make

decisions with long-term consequences until negotiations have been completed

Acquisition process can create a short-

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term perspective and a greater aversion to risk among top-level executives in a target firm.

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Problems With Acquisitions Too

Larger size may lead to more bureaucratic

Large

controls
Formalized controls often lead to relatively

rigid and standardized managerial behavior

Firm may produce less innovation

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THANK YOU

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