8-1© 2006 by Nelson, a division of Thomson Canada Limited. Chapter 8 Acquisition and Restructuring Strategies Chapter Eight

8-2© 2006 by Nelson, a division of Thomson Canada Limited. Chapter 5 Bus. - Level Strategy Chapter 6 Competitive Dynamics Chapter 9 International Strategy Chapter 10 Cooperative Strategies Chapter 8 Acquisitions & Restructuring Chapter 11 Corporate Governance Chapter 12 Structure & Control Chapter 13 Strategic Leadership Chapter 14 Entrepreneurship & Innovation Strategic Inputs Strategic Actions Strategic Outcomes Chapter 4 Internal Environment Chapter 3 External Environment Strat. Intent Strat. Mission The Strategic Management. Process Strategy Formulation Strategy Implementation Strategic Competitiveness Chapter 1 Above Average Returns Chapter 2 Feedback Strategic Competitiveness Chapter 1 Chapter 7 Corp. - Level Strategy Chapter 5 Bus. - Level Strategy Chapter 6 Competitive Dynamics Chapter 8 Acquisitions & Restructuring The Strategic Management Process

8-3© 2006 by Nelson, a division of Thomson Canada Limited. Acquisition and Restructuring Strategies Knowledge Objectives: 1.Explain the popularity of acquisition strategies for firms competing in the global economy. 2.Discuss reasons firms use an acquisition strategy to achieve strategic competitiveness. 3.Describe seven problems that work against developing a competitive advantage using an acquisition strategy. 4.Name and describe attributes of effective acquisitions. 5.Define the restructuring strategy and distinguish among it’s common forms. 6.Explain the short-term and long-term outcomes of the different types of restructuring strategies.

8-4© 2006 by Nelson, a division of Thomson Canada Limited. Merger: A transaction where two firms agree to integrate their operations on a relatively co- equal basis. Mergers and Acquisitions *

8-5© 2006 by Nelson, a division of Thomson Canada Limited. Acquisition: A strategy where one firm buys a controlling or 100% interest in another firm with the intent of making the acquired firm a subsidiary within its portfolio. Takeover: An acquisition where the target firm did not solicit the bid of the acquiring firm. Mergers and Acquisitions

8-6© 2006 by Nelson, a division of Thomson Canada Limited. Horizontal Acquisition The acquisition of a company competing in the same industry in which the acquiring firm competes. Vertical Acquisition A firm acquiring a supplier of distributor of one or more of it’s goods or services. Related Acquisition The acquisition of a firm in a highly related industry.

8-7© 2006 by Nelson, a division of Thomson Canada Limited. Reasons for Acquisitions

8-8© 2006 by Nelson, a division of Thomson Canada Limited. Pharmaceutical firms access new products through acquisitions of other drug manufacturers Alcan’s purchase of Pechiney (Ch. 1 opening case) Reasons for Acquisitions Best Buys purchase of Future Shop Increased Market Power Acquisition intended to reduce the competitive balance of the industry Overcome Barriers to Entry Acquisitions overcome costly barriers to entry which may make “start-ups” economically unattractive Buying established businesses reduces risk of start- up ventures Lower Cost & Risk of New Product Development

8-9© 2006 by Nelson, a division of Thomson Canada Limited. Reasons for Acquisitions Toronto’s Onex Corporation British Telcom’s Acquisition of Ireland’s East Telecom The Jim Pattison Group of Companies Increased Speed to Market Closely related to Barriers to Entry, allows market entry in a more timely fashion Increasing Diversification and Competitive Scope Firms may use acquisitions to restrict dependence on a single or a few products or markets Avoiding Excessive Competition Firms may acquire businesses in which competitive pressures are less intense than in their core business

8-10© 2006 by Nelson, a division of Thomson Canada Limited. Reasons for Acquisitions The Jim Pattison Group of Companies Angiotech: a Vancouver based research lab. Learn & Develop New Capabilities Acquiring firms with new capabilities helps the acquiring firm to learn new knowledge and remain agile. Reshape the firm’s competitive scope Reducing a firm’s dependence on specific markets alters the firm’s competitive scope.

8-11© 2006 by Nelson, a division of Thomson Canada Limited. Problems With Acquisitions

8-12© 2006 by Nelson, a division of Thomson Canada Limited. TransCanada’s acquisition of Nova Corp Dynegy’s near purchase of Enron TD Banks acquisition of Canada Trust Problems with Acquisitions Integration Difficulties Differing cultures may make integration of firms difficult. Inadequate Evaluation of Target ‘Winners Curse’ causes acquirer to overpay for firm. Large or Extraordinary Debt Costly debt can create onerous burden on cash outflows.

8-13© 2006 by Nelson, a division of Thomson Canada Limited. Problems with Acquisitions Vivendi’s purchase of Seagram Co. Ltd. GE--prior to selling businesses and refocusing Futurelink Inability to Achieve Synergy Justifying acquisitions can increase estimate of expected benefits. Overly Diversified Acquirer doesn’t have expertise required to manage unrelated businesses. Managers Overly Focused on Acquisitions Managers lose track of core business by spending so much effort on acquisitions. Too Large Large bureaucracy reduced innovation & flexibility.

8-14© 2006 by Nelson, a division of Thomson Canada Limited. Attributes of friendly Acquisitions

8-15© 2006 by Nelson, a division of Thomson Canada Limited. Reducing scope of operations. Selectively divesting or closing non-core businesses. Leads to greater focus. Restructuring Activities Agilient Technologies cutting of its workforce by 15,000 jobs Telus cutting of its workforce by 6,000 jobs Downscoping Downsizing Wholesale reduction of employees. Leveraged Buyout (LBO) A party buys a firm’s entire assets in order to take the firm private. Forsmann Little’s buyout of Dr. Pepper

8-16© 2006 by Nelson, a division of Thomson Canada Limited. Downscoping Downsizing Lower Performance Reduced Labour Costs Loss of Human Capital Alternatives Short-Term Outcomes Long-Term Outcomes Higher Risk High Debt Costs Leveraged Buyout Downsizing Higher Performance Reduced Debt Costs Emphasis on Strategic Controls Reduced Labour Costs Loss of Human Capital Lower Performance Downscoping Reduced Debt Costs Restructuring and Outcomes Leveraged Buyout