Corporate Growth A major acquisition is the fastest way to compensate for a company's failure to grow organically (via internal means) A major acquisition is the fastest way to compensate for a company's failure to grow organically (via internal means) You don't get a gazelle by breeding dinosaurs. You don't get a gazelle by breeding dinosaurs. –“When Dinosaurs Mate,” G. Hamel, WSJ

Best Path to Growth? Ford –Jaguar –Mazda General Motors –Saab Hewlett-Packard –Compaq Unilever –Knorr –Ben & Jerry Daimler-Benz –Chrysler Corporate strategy solutions Starbuck’s Southwest Airlines ToyotaDellWal-MartNike Business strategy solutions Business strategy solutions

Dell acquired gaming PC maker Alienware to expand position in high-end niche segment (prices start at $5995)

Entering New Businesses WHY? WHY? – Does business fit? o o Financially o o Strategically o o Culturally HOW? HOW? – Acquisition or merger – Internal start-up – Joint ventures – Alliance

Justifications for M&A Attractiveness test Attractiveness test – Industry factors – Core competencies – Strategic position Cost of entry test Cost of entry test – Buy outstanding shares – Cash – Contributions to merger or JV Better off test Better off test – Synergies, econ. of scale/scope – Consolidation of resources, activities – Leverage strategic assets for competitive advantage?

Blue Circle Unrelated Diversified Firm HQ Cement Products BricksGas Stoves Lawn Mowers Unrelated to Other Units or Core Competence OK

Boddingtons Related Horizontal Diversified Firm HQ Pubs Restaurants HotelsHealth Clubs Nursing Homes Related to Other Units via Core Competence

Adidas-Reebok Merger + vs.

+ Employees26,10024,600 U.S. Market Share 21.1%36.3% Global Market Share 25.0%33.2% Net Income $517.9 mil $1.2 bil Hot Product SmartShoe + Nelly’s shoe line L. Armstrong apparel + iPod Sport Kit + iPod Sport Kit Adidas-Reebok Merger

Adidas-Reebok Why? Why? Better off? Better off?

Adidas-Reebok Merger + vs.

Gillette Personal Grooming Small Appliances Oral Care Portable Power

Gillette Personal Grooming Small Appliances Oral Care Portable Power PEST

Gillette Personal Grooming Small Appliances Oral Care Portable Power Value Chain Analysis Gillette’s acquisition of Duracell allows it to leverage the following strategic assets across business units (synergies)

PROCTER & GAMBLE SoapsFoodBeveragesPaper Products Gillette Razors Core Product Mr. Coffee Machines Duracell Batteries Oral-B Toothbrush

M&A Exercise Nokia Nextel Sony-Ericsson Netscape Red Hat Motorola AMD Circuit City Nokia should acquire _________________ Apple XM-Sirius Radio BlackberryPalm Other?

Attractiveness Test Why is the _________ industry attractive to Nokia? Attractiveness Test Why is the _________ industry attractive to Nokia?

Cost of Entry Test Can Nokia afford to acquire ___________? Yes No

Better-off Test (1) The acquisition of _____ gives it the following position in strategic space in the _____ industry Dimension 1 Dimension 2

Nokia Cell Phones Better-off Test (2) Nokia’s acquisition of ______ allows it to leverage the following strategic assets across business units (synergies)

Better-off Test (3) Nokia’s acquisition of ________ gives it the following business unit portfolio Long-term Industry Attractiveness Competitive Advantage High Med Low StrongAvg.Weak Mobile Phones