Acquisition and Final - Copy2003[1]

8/8/2019 Acquisition and Final - Copy2003[1]

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ACQUISITION AND

RESTRUCTURING STRATEGIES


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1. Huda Ansari 04

2. Parveen Khwaja 23

3. Arshiya Shaikh 43

4. Shazia Shaikh 49

5. Asif Sayed 54


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MERGER

Two firms agree to integrate their operations on arelatively co-equal basis.

Example:

1. Air India and Indian Airlines

2. Glaxo Wellcome Plc. and SmithKline Beecham Plc. -

GlaxoSmithkline


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TAKEOVER

A special type of acquisition when the target firm did notsolicit the acquiring firms bid for outright ownership.

Example:

1. Reliance Infocom Flag International

2. Mahindra Signs Deal to Takeover Ssangyong


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ACQUISITION

One firm buys a controlling, or100% interest in another firm withthe intent of making the acquired firm a subsidiary business withinits portfolio.

Example:

1. TATA Corus2. Vodafone - Hutchison Essar in India


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REASONS FORACQUISITON


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INCREASED MARKET POWER (CONTD)

Horizontal Acquisition

The acquisition of a company competing in

the same industry as the acquiring firm.

Example:

1. M&M tractor acquiring punjab tractor

2. TATA Tea Tetley, British


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Vertical Acquisition:

It refers to a firm acquiring a supplier or

distributor of one or more of its goods or

service.

Example:


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Related Acquisition:

The acquisition of a firm in a highly related

industry

Example:

1. ITC Infotech acquired Pyxis solution

2. Essel Packaging acquired Propack


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2. OVERCOMING ENTRY BARRIERS

Example:

1. TATA Nat Steel, Singapore (Thailand,China, Malaysia, Vietnam, the Philippines

and Australia )

Entry barriers are created by Economies of scaleand differentiated product

Ac uisition of an established company is more

effecti e than entering the mar et as acompetitor.


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3. COST OF NEW-PRODUCT DEVELOPMENT AND INCREASED

SPEED TO MARKET

Acquisitions allow a firm to gain access to new and

current products that are new to the firm.

Returns are more predictable because of theacquired firms experience with the products.

Example:

1. i alc ac ire alis


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4. LOWER RISK COMPARED TO DEVELOPING NEW PRODUCTS

An acquisitions outcomes can be estimatedmore easily and accurately than the outcomesof an internal product development process.


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5. INCREASED DIVERSIFICATION

Usi ac isiti s t i ersif a fir is t eic est a easiest a t c a e its rtf li

f si esses.


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7. LEARNING AND DEVELOPING NEW

CAPABILITIES

An ac iring fir cangain ca a ilities t at t e fir es not c rrentl ossess for e a le tec nologies

Example:

1. TATA Corus

2. Ranbaxy tokyo based


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PROBLEMS IN ACHIEVING

ACQUISITION SUCCESS


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1. INTEGRATION DIFFICULTIES

Integrating two companies following an acquisition canbe difficult

Integration is of two companies complex process


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2. INADEQUATE EVALUATION OF THE

TARGET

Due Diligence is the process of evaluating a target firm foracquisition

It is commonly performed by investment bankers, accountants,lawyers and management consultants.


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5. TOO MUCH DIVERSIFICATION

Increased operational scope created bydiversification may cause managers to rely toomuch on financial rather than strategic controlsto evaluate business units performances.

Strategic focus shifts to short-termperformance.


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7. TOO LARGE

Additional costs required to manage large firm

Larger size may lead to more bureaucraticcontrols


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8. RESTRUCTURING

Restructuring strategies are used to correct the failure of mergers

and acquisitions

A strategy through hich a firm changes its set of usinesses orfinancial structure

Restructuringstrategies:

Downsizing

Downscoping

Leveraged buyouts


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LowerLower

performanceperformance

HigherHigher

performanceperformance

Higher riskHigher risk

Loss ofLoss of

human capitalhuman capital

RESTRUCTURING AND

OUTCOMES

Emphasis onEmphasis on

strategic controlsstrategic controls

High debt costsHigh debt costs

Reduced debtReduced debt

costscosts

Reduced laborReduced labor

costscostsDownsizingDownsizing

DownscopingDownscoping

LeveragedLeveragedbuyoutbuyout


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Documents

Acquisition and Final - Copy2003[1]