2. 4-1 1 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Chapter Three: The External Environment Chapter Three: The External Environment © 2 0 0 9 Hitt, Ireland, Hoskission, Rowe & Sheppard Strategic Management N o t e s Chapter Eight: Acquisition & Restructuring Competitiveness & Globalization

3. 4-2 2 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties The Strategic Management Process Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic  Actions  Ch. 1: Strat. Mgmt. & Com- petitiveness Ch. 2: Strat. Mgmt. & Performance Chapter 3: The External Environment Chapter 4: The Internal Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 8: Acquisition & Restructuring

4. 4-3 3 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Acquisition & Restructuring 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 problems that work against developing a competitive advantage using an acquisition strategy. 4.Name & describe attributes of effective acquisitions. 5.Define the restructuring strategy and distinguish among its common forms. 6.Explain the short-term and long-term outcomes of the different types of restructuring strategies.

5. 4-4 4 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Mergers and Acquisitions Takeover: An acquisition where the target did not solicit the bid of the acquiring firm. Merger: Where 2 firms agree to integrate operations on a relatively co-equal basis. Acquisition: Where a firm buys controlling interest in another with intentions to make the acquired a subsidiary within its portfolio. M&A & Types of Acquisitions

6. 4-5 5 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Acquisition Types The purchase of a firm in an industry associated with the buyer’s industry. Related Acquisition Vertical Acquisition A firm acquiring a supplier of distributor of one or more of it’s goods or services. The acquisition of a company competing in the same industry in which the acquiring firm competes. Horizontal Acquisition M&A & Types of Acquisitions

7. 4-6 6 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Reasons for Acquisitions Increased market power Overcoming entry barriers Increased diversification Reshaping the firm’s competitive scope Faster, lower cost new product development Lower risk than developing new products Learning & developing new capabilities Organizational Development Concerns Market & Scope Concerns Acquisitions Reasons for Acquisitions

8. 4-7 7 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Reasons for Acquisitions Market & Scope Concerns Barrick Gold’s purchase of Placer Dome. Increased Market Power Acquisition intended to reduce the competitive balance of the industry. Best Buys purchase of Future Shop Overcome Entry Barriers Acquisitions kill costly entry barriers that may make start-ups economically nasty. Jim Pattison Group of Companies Reshape Competitive Scope Reduce a firm’s dependence on specific markets alters a firm’s competitive scope. Toronto’s Onex Corporation Increased Diversification & Scope Acquisitions to reduce dependence on a single or a few products or markets. Barrick Gold’s purchase of Placer Dome. Increased Market Power Acquisition intended to reduce the competitive balance of the industry. Best Buys purchase of Future Shop Overcome Entry Barriers Acquisitions kill costly entry barriers that may make start-ups economically nasty. Toronto’s Onex Corporation Increased Diversification & Scope Acquisitions to reduce dependence on a single or a few products or markets. 4-7 7 28 M&A & Types of Acquisitions Market & Scope Issues

9. 4-8 8 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Cisco Systems acquisition strategy. Learn & Develop New Capabilities Learn & Develop New Capabilities Acquiring firms with new capabilities helps the firm to learn, gain knowledge and remain agile. Inbev’s Purchase of Anheuser-Busch. Buying established businesses reduces risk of start-up ventures. Lower Risk than developing New Products Lower Risk than developing New Products Couche-Tard bought Statoil to get a foothold in North & Central Europe convenience store market. Increased Speed to Market at Lower Cost Increased Speed to Market at Lower Cost Allows market entry in a more timely fashion. Reasons for Acquisitions Org. Development Concerns Development Concerns

10. 4-9 9 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Problems with Acquisitions Administrative Difficulties Strategic Difficulties Inadequate evaluation of target Too much diversification Inability to achieve synergy Integrationdifficulties Large or extraordinary debt Mgmt. over focus on acquisitions Resulting firm is too large Acquisitions Problems with Acquisitions

11. 4-10 10 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties CanWest Global Communications 2000 acquisition Hollinger Newspapers put it on the road to its 2009 bankruptcy. In 2006 Brazilian Iron miner Vale took over Canada’s InCo. A top down mgmt. style clashed with a participative one. Most top Canadian mangers left & union strikes followed. Acquisition Problems Administrative Difficulties Integration Difficulties Differing cultures may make integration of firms hard. Large or Extraordinary Debt Costly debt can create onerous burden on cash outflows. Administrative Difficulties

12. 4-11 11 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Toronto’s Brookfield Asset Management before it spun off its electric transmission and timber interests. Japan’s Livedoor / the original LTV. Acquisition Problems Administrative Difficulties Mgmt. overly focused on Acquisitions Managers lose track of core business by spending so much effort on acquisitions. Too Large Large bureaucracy resulting in reduced innovation & flexibility. Administrative Difficulties

13. 4-12 12 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Acquisition Problems Strategic Difficulties In 2010 HP’s stock fell after it won a bidding war with Dell for computer storage device maker 3PAR. Inadequate Evaluation of Target Inadequate Evaluation of Target ‘Winners Curse’ causes acquirer to overpay. GE - prior to selling businesses and refocusing. Overly Diversified Acquirer does not have expertise required to manage unrelated businesses. Monsanto’s entry into the market for non- genetically modified fruits and vegetable seeds. Inability to Achieve Synergy Inability to Achieve Synergy Justifying acquisitions can increase estimate of expected benefits. Strategic Difficulties

14. 4-13 13 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Attributes of Friendly Acquisitions Attributes Attributes Results Results Complement Complement = goes well together. Compliment Compliment = An admiring remark. Likely synergies and competitive advantage by maintaining strengths Acquired firm’s resources are com- plementary to acquirer’s core bus. That allow for faster & more effective integration Strongest complementarities are acquired & overpayment is avoided Acquirer conducts negotiations carefully & deliberately with target Financing (debt or equity) is easier and less costly to obtain Acquiring firm has financial slack (cash or favourable debt position) SLACK, not Slacker! Faster & more effective integration facilitates achievement of synergy Has experience with change and is flexible and adaptable Merged firm maintains moderate, not high, levels of debt Lower finance cost & risk avoidance of trade-offs associated with hi debt Maintain long-term competitive advantage in markets Sustained and consistent emphasis on R&D and innovation Likely synergies and competitive advantage by maintaining strengths Acquired firm’s resources are com- plementary to acquirer’s core bus. Strongest complementarities are acquired & overpayment is avoided Acquirer conducts negotiations carefully & deliberately with target Financing (debt or equity) is easier and less costly to obtain Acquiring firm has financial slack (cash or favourable debt position) Lower finance cost & risk avoidance of trade-offs associated with hi debt Merged firm maintains moderate, not high, levels of debt Faster & more effective integration facilitates achievement of synergy Has experience with change and is flexible and adaptable Maintain long-term competitive advantage in markets Sustained and consistent emphasis on R&D and innovation Friendly Acquisitions

15. 4-14 14 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Reducing scope of operations; Selectively divesting or closing non-core businesses; Leads to greater focus. Restructuring Activities All the auto companies. Brookfield Asset Management / Tata Group. Downscoping Downsizing Wholesale reduction of employees. Wholesale reduction of employees. Leveraged Buyout (LBO) A party buys a firm’s entire assets in order to take the firm private. Michael Dell & Silver Lake Management LLC taking Dell computer private for $24 billion by Nov. 5 2013. Restructuring & Outcomes

16. 4-15 15 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties Leveraged Buyout Leveraged Buyout Downscoping Downscoping Downsizing Downsizing Alternatives Short-Term Outcomes Long-Term Outcomes Restructuring and Outcomes Reduced Debt Costs Lower Performance Lower Performance Loss of Human Capital Emphasis on Strategic Controls Higher Performance Higher Performance Reduced Debt Costs Lower Performance Lower Performance Loss of Human Capital Downsizing Downsizing Reduced Debt Costs Emphasis on Strategic Controls High Debt Costs High Debt Costs Higher Performance Higher Performance Higher Risk Higher Risk Downscoping Downscoping Emphasis on Strategic Controls Higher Performance Higher Performance Reduced Debt Costs Lower Performance Lower Performance Loss of Human Capital High Debt Costs High Debt Costs Higher Risk Higher Risk Leveraged Buyout Leveraged Buyout Downscoping Downscoping Downsizing Downsizing Restructuring & Outcomes

17. 4-16 16 M&A & Types of Acquisitions Reasons for Acquisitions Market & Scope Issues Development Concerns Problems with Acquisitions Administrative Difficulties Friendly Acquisitions Restructuring & Outcomes Strategic Difficulties The Strategic Management Process Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic  Actions  Ch. 1: Strat. Mgmt. & Com- petitiveness Ch. 2: Strat. Mgmt. & Performance Chapter 3: The External Environment Chapter 4: The Internal Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 8: Acquisition & Restructuring