Acquisition and Restructuring Strategies

CHAPTER 7
STRATEGIC ACTIONS: STRATEGY FORMULATION
Acquisition and Restructuring Strategies

Strategic Management
Competitiveness and Globalization: Seventh edition Concepts and Cases
Michael A. Hitt R. Duane Ireland Robert E. Hoskisson
PowerPoint Presentation by Charlie Cook The University of West Alabama 2007 Thomson/South-Western. All rights reserved.
KNOWLEDGE OBJECTIVES Studying this chapter should provide you with the strategic management knowledge needed to:
1. Explain the popularity of acquisition strategies in firms competing in the global economy. 2. Discuss reasons why 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 its common forms. 6. Explain the short- and long-term outcomes of the different types of restructuring strategies.
2007 Thomson/South-Western. All rights reserved. 72
Mergers, Acquisitions, and Takeovers: What are the Differences?

Merger
Two firms agree to integrate their operations on a relatively co-equal basis.
Acquisition
One firm buys a controlling, or 100% interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio.
Takeover
A special type of acquisition when the target firm did not solicit the acquiring firms bid for outright ownership.
FIGURE
7.1
Reasons for Acquisitions and Problems in Achieving Success
2007 Thomson/South-Western. All rights reserved.
74
Reasons for Acquisitions

Increased market power Overcoming entry barriers
Learning and developing new capabilities
Reshaping firms competitive scope
Making an Acquisition
Cost of new product development
Increased diversification
Lower risk than developing new products
Increase speed to market
75
M&A : Background & Scenario

In 1990, only six developing and transition countries had made any outward investment. In 2005, the number increased to 25. Between 1987 and 2005, the share of global M&As by MNCs from developing and transition countries rose from 4% to 13% in value terms, and their share in greenfield and expansion projects exceeded 15 percent in 2005.
M&A : Background & Scenario...Contd.

A survey shows that 81% of the companies have considered M&As and 30% have actually done a transaction in the past 3 years. Over 70% say that they expect to do a deal in the next 3 years. All this denotes that we are set for an M&A boom in the years to come. Global M&A volumes of $10bn a day, Indias $18bn for the year 2005 indicates that there is still a long way to go. The trend is clearly on the way up.
M&A in 2006-07 - $ 3.6 Trillion

M&A in 2005-06 - $ 3.55 Trillion (data by Bloomberg) October 2006 M&A deals - $ 262 Billion The Asian M&A market saw 5792 deals worth $ 255.07 billion China alone was the largest market with 1862 deals worth $54.76 billion
Indian Scenario - Major Deals

Corporate India has gone on an acquisition spree, powered by the urge to go global, strong market fundamentals and the drive to dish out costcompetitive products. Acquisitions were not limited to the domestic market, but spread out in the global arena also.
Though India's public sector took the lead in investing abroad, especially looking for oil assets, the private sector is now going full speed ahead, driving overseas investments e.g. Arcelor acquired by Mr. Lakshmi Mittal. Mahindra & Mahindra's takeover of 90 percent stake in Schoneweiss, a family-owned German company. Tata's takeover of Corus & Tetley Tea Co. Hutchison Whampoa of Hong Kong sold their controlling stake in Hutchison - Essar to Vodafone for a whopping $11.1 billion. 2007 Thomson/South-Western. All rights reserved. 78
Indian Scenario - Major Deals .Contd. Swiss cement major, Holcim, which acquired a 67 per cent stake in Ambuja Cement India Ltd (ACIL).
Videocon Group's acquisition of Thomson's colour picture tube business in China, Poland, Mexico, and Italy for a total of $290 million. The other large overseas deal was by pharmaceuticals Matrix Laboratories, which acquired 100 per cent of the Belgian Pharma Co., Docpharma for $263 million). Birla-Hindalco Indian business conglomerate Aditya Birla group-owned flagship company Hindalco Industries Ltd. Took over Atlanta-based aluminum giant Novelis Inc. for US$ 6.4 billion
Indian firms concluded 70 M&A deals between April and September, spending $14 billion and would have saved as much as Rs.6500 crore ($1.66 billion) because of the over 10% rupee appreciation against the greenback, an Assocham Eco Pulse study said.
710
Coping With China's Financial Power

Today, Beijing continues to subsidize exports heavily. It does so directly, through favorable loans to businesses and favorable exchange rates to foreign buyers of Chinese goods. And it does so indirectly, through what economists call "financial repression," whereby the government imposes controls on the investment of Chinese citizens that allow it to funnel capital into Chinese businesses. The People's Bank of China has gathered a good portion of the enormous trade profits and cash inflows that have resulted. At the end of 2009, it held $2.4 trillion worth of foreign exchange. This is the largest amount of foreign exchange owned by any central bank in the world -- and it does not even reflect the reserves held by China's major commercial banks. What is more, the figure is likely to grow by another $300 billion in 2010.
GOING OUT
During the go-out policy's first ten years, Asia was always an area of great interest for Chinese companies; Africa and Latin America have increasingly become so. The government has heavily promoted investments in oil and gas, mining and metals, and financial services, but also in virtually every other economic sector. Over time, the Chinese government has placed more emphasis on acquiring know-how: one of the objectives of the China National Offshore Oil Corporation (CNOOC) in trying to take over the U.S. energy giant Unocal in 2005 was to acquire technology for energy exploration and production.
712
Chinese companies have encountered fierce resistance to several high-profile attempts to acquire foreign firms, especially in the United States. Lenovo's friendly purchase of IBM's personal-computer business for $1.7 billion in 2005 seems like an exception. That same year, Chevron launched a major public relations campaign to mobilize Americans' xenophobia against CNOOC, which was trying to acquire the California-based Unocal. In short order, Chevron convinced CNOOC that the U.S. Congress would oppose the sale and got it to drop its $19 billion bid. When, in February 2008, the Australian natural-resource firm BHP Billiton attempted to take over the Australian firm Rio Tinto, the Chinese government made $40 billion available to the Aluminum Corporation of China (Chinalco) to outbid it. It was seeking to thwart the deal because it believed that consolidation between BHP Billiton and Rio Tinto, two major suppliers of iron ore, a key ingredient in the production of the steel essential to China's infrastructure, might cause iron ore prices to shoot up. Two years later, Chinalco has managed to secure only a modest minority position in Rio Tinto's common stock, and BHP Billiton is now on track to combine its operations and Rio Tinto's in a joint venture. The Australians' chauvinistic desire to keep their largest companies out of China's sphere of influence has been a major force in this multiyear struggle. In Australia and elsewhere, Chinese companies are making some progress on small natural-resource deals, but they have encountered resistance to high-profile takeover attempts in developed economies.
713
Chinese FDI is also limited by skepticism about overseas investment opportunities among Chinese businesses. Many have grown wary after the dramatic failure of deals that seemed promising at first. In October 2004, the Shanghai Automotive Industry Corporation paid $500 million for a 51 percent stake in the South Korean carmaker SsangYong Motor with grand plans for building a Chinese car that utilized South Korean technology and for turning the Shanghai Automotive Industry Corporation into a Fortune 500 company.
The Shenzhen-based insurance firm Ping An hoped to gain expertise in asset management by investing in the Dutch company Fortis Group in late 2007, but in short order that attempt turned into a $3.3 billion write-off. That year, TCL, a major Chinese television manufacturer, encountered similar misfortunes in a joint venture with Thomson Electronics in France, suffering major losses in Europe that eventually forced it to downsize, close, or sell most of its European operations.
714
Similarly, a key dimension of China's go-out policy is to award grants, aid, and concessional loans to foreign governments in support of specific projects and to require in exchange that they hire only specified Chinese companies to do the work. Numbers published by China's Ministry of Finance suggest that outright grants and foreign aid (excluding military assistance) from Beijing totaled less than $2 billion last year (compared with $28 billion for the United States). Pure aid from China takes the form of medical and technical assistance, scholarships, investments in Chinese-language programs, or funds for turnkey plants. For instance, the Export-Import Bank of China is providing 85 percent of the $1 billion of financing for a new port in Hambantota, Sri Lanka, which the state-owned enterprise China Harbour Engineering is building. The Chinese government has similarly supported the development of port facilities in Bangladesh, Myanmar (also known as Burma), and Pakistan; railroad lines in Nepal; roads and sports stadiums all over Africa; and other big infrastructure projects throughout Latin America.
715
An estimated 70.2 million hectares of agricultural land worldwide have been sold or leased to foreign private and public investors since 2000, according to new research conducted by the Worldwatch Institute . The bulk of these acquisitions, which are called land grabs by some observers, took place between 2008 and 2010, peaking in 2009. Although data for 2010 indicate that the amount of acquisitions dropped considerably after the 2009 peak, it still remains well above pre-2005 levels, writes Worldwatch author Cameron Scherer. Although definitions vary, land grab here refers to the large-scale purchase of agricultural land by foreign investors.
716
Africa has seen the greatest share of land involved in these acquisitions, with 34.3 million hectares sold or leased since 2000. East Africa accounts for the greatest investment, with 310 deals covering 16.8 million hectares. Increased investment in Africas agricultural land reflects a decade-long trend of strengthening economic relationships between Africa and the rest of the world, with foreign direct investment to the continent growing 259 per cent between 2000 and 2010. Asia and Latin America come in second and third for most heavily targeted regions, with 27.1 million and 6.6 million hectares of land deals, respectively. Investor countries, in contrast, are spread more evenly around the globe. Of the 82 listed investor countries in the Land Matrix Project database, Brazil, India, and China account for 16.5 million hectares, or around 24 percent of the total hectares sold or leased worldwide. When the East Asian nations of Indonesia, Malaysia, and South Korea are included, this group of industrializing countries has been involved in 274 land deals covering 30.5 million hectares.
717
Objective of our competition policy
Creating an active competitive environment, and in aiding the process of creating globally competitive firms with
enhanced investment & technological

capabilities.
718
Progress made in Indian competitive Policy
The Act also envisages establishment of the Competition Commission. However, the Commission set up under the Act is not yet fully operational for the present. While some issues relating to its functioning are being addressed, it is carrying out only advocacy functions, as of now and thus competition issues continue to be adjudicated by MRTPC.
719
Acquisitions: Increased Market Power

Factors increasing market power when:
There is the ability to sell goods or services above competitive levels. Costs of primary or support activities are below those of competitors. A firms size, resources and capabilities gives it a superior ability to compete.
Acquisitions intended to increase market power are subject to:

Regulatory review Analysis by financial markets
Acquisitions: Increased Market Power (contd)

Market power is increased by:
Horizontal acquisitions: other firms in the same industry Vertical acquisitions: suppliers or distributors of the acquiring firm
Related acquisitions: firms in related industries
721
Market Power Acquisitions

Horizontal Acquisitions Acquisition of a company in the same industry in which the acquiring firm competes increases a firms market power by exploiting: Cost-based synergies
Revenue-based synergies
Acquisitions with similar characteristics result in higher performance than those with dissimilar characteristics.
Market Power Acquisitions (contd)

Horizontal Acquisitions Vertical Acquisitions Acquisition of a supplier or distributor of one or more of the firms goods or services Increases a firms market power by controlling additional parts of the value chain.
723
Market Power Acquisitions (contd)

Horizontal Acquisitions Vertical Acquisitions Acquisition of a company in a highly related industry
Related Acquisitions
Because of the difficulty in implementing synergy, related acquisitions are often difficult to implement.
724
Acquisitions: Overcoming Entry Barriers

Entry Barriers
Factors associated with the market or with the firms operating in it that increase the expense and difficulty faced by new ventures trying to enter that market
Economies of scale Differentiated products
Cross-Border Acquisitions
Acquisitions made between companies with headquarters in different countries
Are often made to overcome entry barriers. Can be difficult to negotiate and operate because of the differences in foreign cultures.
Acquisitions: Cost of New-Product Development and Increased Speed to Market

Internal development of new products is often perceived as high-risk activity.
Acquisitions allow a firm to gain access to new and current products that are new to the firm.
Returns are more predictable because of the acquired firms experience with the products.
726
Acquisitions: Lower Risk Compared to Developing New Products

An acquisitions outcomes can be estimated more easily and accurately than the outcomes of an internal product development process.
Managers may view acquisitions as lowering risk associated with internal ventures and R&D investments. Acquisitions may discourage or suppress innovation.
727
Acquisitions: Increased Diversification

Using acquisitions to diversify a firm is the quickest and easiest way to change its portfolio of businesses. Both related diversification and unrelated diversification strategies can be implemented through acquisitions. The more related the acquired firm is to the acquiring firm, the greater is the probability that the acquisition will be successful.
728
Acquisitions: Reshaping the Firms Competitive Scope

An acquisition can:
Reduce the negative effect of an intense rivalry on a firms financial performance. Reduce a firms dependence on one or more products or markets.
Reducing a companys dependence on specific markets alters the firms competitive scope.
729
Acquisitions: Learning and Developing New Capabilities

An acquiring firm can gain capabilities that the firm does not currently possess:
Special technological capability A broader knowledge base Reduced inertia
Firms should acquire other firms with different but related and complementary capabilities in order to build their own knowledge base.
Problems in Achieving Acquisition Success

Integration difficulties Too large Inadequate target evaluation
Managers overly focused on acquisitions
Problems with Acquisitions
Extraordinary debt
Too much diversification
Inability to achieve synergy
731
Problems in Achieving Acquisition Success: Integration Difficulties

Integration challenges include:
Melding two disparate corporate cultures Linking different financial and control systems Building effective working relationships (particularly when management styles differ) Resolving problems regarding the status of the newly acquired firms executives Loss of key personnel weakens the acquired firms capabilities and reduces its value
Problems in Achieving Acquisition Success: Inadequate Evaluation of the Target

Due Diligence
The process of evaluating a target firm for acquisition
Ineffective due diligence may result in paying an excessive premium for the target company.
Evaluation requires examining:

Financing of the intended transaction Differences in culture between the firms
Tax consequences of the transaction

Actions necessary to meld the two workforces
Problems in Achieving Acquisition Success: Large or Extraordinary Debt

High debt (e.g., junk bonds) can:
Increase the likelihood of bankruptcy Lead to a downgrade of the firms credit rating Preclude investment in activities that contribute to the firms long-term success such as: Research and development Human resource training Marketing
734
Problems in Achieving Acquisition Success: Inability to Achieve Synergy

Synergy
When assets are worth more when used in conjunction with each other than when they are used separately.
Firms experience transaction costs when they use acquisition strategies to create synergy.
Firms tend to underestimate indirect costs when evaluating a potential acquisition.
735
Problems in Achieving Acquisition Success: Inability to Achieve Synergy (contd)

Private synergy
When the combination and integration of the acquiring and acquired firms assets yields capabilities and core competencies that could not be developed by combining and integrating either firms assets with another company. Advantage: It is difficult for competitors to understand and imitate.
Disadvantage: It is also difficult to create.
736
Problems in Achieving Acquisition Success: Too Much Diversification

Diversified firms must process more information of greater diversity.
Increased operational scope created by diversification may cause managers to rely too much on financial rather than strategic controls to evaluate business units performances. Strategic focus shifts to short-term performance. Acquisitions may become substitutes for innovation.
737
Problems in Achieving Acquisition Success: Managers Overly Focused on Acquisitions

Managers invest substantial time and energy in acquisition strategies in:
Searching for viable acquisition candidates. Completing effective due-diligence processes. Preparing for negotiations. Managing the integration process after the acquisition is completed.
738
Problems in Achieving Acquisition Success: Managers Overly Focused on Acquisitions

Managers in target firms operate in a state of virtual suspended animation during an acquisition.
Executives may become hesitant to make decisions with long-term consequences until negotiations have been completed. The acquisition process can create a short-term perspective and a greater aversion to risk among executives in the target firm.
739
Problems in Achieving Acquisition Success: Too Large

Additional costs of controls may exceed the benefits of the economies of scale and additional market power. Larger size may lead to more bureaucratic controls. Formalized controls often lead to relatively rigid and standardized managerial behavior. The firm may produce less innovation.
740
TABLE 7.1
Attributes of Successful Acquisitions
Attributes 1. Acquired firm has assets or resources that are complementary to the acquiring firms core business 2. Acquisition is friendly 3. Acquiring firm conducts effective due diligence to select target firms and evaluate the target firms health (financial, cultural, and human resources) 4. Acquiring firm has financial slack (cash or a favorable debt position) 5. Merged firm maintains low to moderate debt position 6. Acquiring firm has sustained and consistent emphasis on R&D and innovation 7. Acquiring firm manages change well and is flexible and adaptable Results 1. High probability of synergy and competitive advantage by maintaining strengths 2. Faster and more effective integration and possibly lower premiums 3. Firms with strongest complementarities are acquired and overpayment is avoided 4. Financing (debt or equity) is easier and less costly to obtain 5. Lower financing cost, lower risk (e.g., of bankruptcy), and avoidance of trade-offs that are associated with high debt 6. Maintain long-term competitive advantage in markets 7. Faster and more effective integration facilitates achievement of synergy
Effective Acquisition Strategies

Complementary Assets /Resources Friendly Acquisitions Careful Selection Process Maintain Financial Slack Buying firms with assets that meet current needs to build competitiveness. Friendly deals make integration go more smoothly. Deliberate evaluation and negotiations are more likely to lead to easy integration and building synergies. Provide enough additional financial resources so that profitable projects would not be foregone.
742
Attributes of Effective Acquisitions

Attributes Results
Low-to-Moderate Merged firm maintains financial flexibility Debt Sustain Emphasis on Innovation Continue to invest in R&D as part of the firms overall strategy
Flexibility
Has experience at managing change and is flexible and adaptable
743
Restructuring
A strategy through which a firm changes its set of businesses or financial structure.
Failure of an acquisition strategy often precedes a restructuring strategy.
Restructuring may occur because of changes in the external or internal environments.
Restructuring strategies:
Downsizing
Downscoping
Leveraged buyouts
Types of Restructuring: Downsizing

A reduction in the number of a firms employees and sometimes in the number of its operating units.
May or may not change the composition of businesses in the companys portfolio.
Typical reasons for downsizing:

Expectation of improved profitability from cost reductions
Desire or necessity for more efficient operations
745
Types of Restructuring: Downscoping

A divestiture, spin-off or other means of eliminating businesses unrelated to a firms core businesses. A set of actions that causes a firm to strategically refocus on its core businesses.
May be accompanied by downsizing, but not eliminating key employees from its primary businesses.
Smaller firm can be more effectively managed by the top management team.
746
Restructuring: Leveraged Buyouts (LBO)

A restructuring strategy whereby a party buys all of a firms assets in order to take the firm private.
Significant amounts of debt may be incurred to finance the buyout.
Immediate sale of non-core assets to pare down debt.
Can correct for managerial mistakes

Managers making decisions that serve their own interests rather than those of shareholders.
Can facilitate entrepreneurial efforts and strategic growth.

FIGURE
7.2
Restructuring and Outcomes
748
Marx Modern Social Experience
Alienation The estrangement of human beings from the products of their labour, themselves and others, which is the outcome of forced labour
749
Alienation
Marxs analysis of capitalism was thus the analysis of the alienation of individuals and classes (both workers and capitalists) losing control over their own existence in a system subject to economic laws over which they had no control.
750
Eye of the storm: crux of crisis
Crisis is systemic, with two root causes:

Complete alienation of the population PLUS Complete lack of legitimate, functioning institutions EQUALS
Lack of a legitimate, valid social contract

Alienation
For Marx, the history of mankind has a double aspect: it was the history of increasing control of man over nature and at the same time, it was the history of the increasing alienation of other competitor.
752
Alienation
When people are alienated they feel powerless, isolated, and feel the social world is meaningless. They look at social institutions as beyond their control, and consider them oppressive.
753
Alienation
For Marx, all major spheres of capitalist society religion, state, economywere marked by a condition of alienation. Alienation thus confronts man in the whole world of institutions in which she is enmeshed.
754
Alienation
Marx believed that the capacity for labor is one of the most distinctive human characteristics. All other species are objects in the world; people alone are subjects, because they consciously act on and create the world, thus shaping their lives, cultures, and the self in the process.
755
Alienation
Economic alienation under capitalism means that man is alienated in daily activitiesin the very work by which he/she fashions a living. There are four aspects to economic alienation. Man is alienated from : The object of labor The process of production Himself/Herself Fellow human beings
Alienation
"Work is external to the workerit is not part of his nature; consequently he does not fulfill himself in his work but denies himself"In work, the worker does not belong to himself, but to another person.
757
Franchising Terms
Franchising
A marketing system revolving around a two-party legal agreement, whereby the franchisee conducts business according to the terms specified by the franchisor
Franchise contract
The legal agreement between franchisor and franchisee
Franchise
The privileges conveyed in the franchise contract
continued 4-58
Franchising Terms
Franchisee
An entrepreneur whose power is limited by a contractual agreement with a franchisor
Franchisor
The party in the franchise contract that specifies the methods to be followed and the terms to be met by the other party
4-59
The Franchising Boom!!!

Sales of $1 trillion in virtually every product or service imaginable. More than 4,500 franchisers operating some 600,000 outlets worldwide. Franchise sales account for 44% of total retail sales. A new franchise opens somewhere in the world every six-and-a-half minutes.
Boom!
760
Types of Franchising
Trade-name Product distribution Pure (or Comprehensive or Business Format)
761
Benefits of Franchising
Management training and support Brand name appeal Standardized quality of goods and services National advertising program Financial assistance
762
Benefits of Franchising
(continued)
Proven products and business formats Centralized buying power Site selection and territorial protection Greater chance for success
763
Drawbacks of Franchising
Franchise fees and profit sharing Strict adherence to standardized operations Restrictions on purchasing Limited product line Unsatisfactory training programs Market saturation Less freedom
764
Ten Myths of Franchising

1. Franchising is the safest way to go into business because franchises never fail. 2. Ill be able to open my franchise for less money than the franchiser estimates. 3. The bigger the franchise organization, the more successful Ill be. 4. Ill use 80 percent of the franchisers business system, but Ill improve upon by substituting my experience and know-how.
765

(continued) 5. All franchises are the same. 6. I dont have to be a hands-on manager. I can be an absentee owner and still be very successful. 7. Anyone can be a satisfied, successful franchise owner.
766

(continued) 8. Franchising is the cheapest way to get into business for yourself. 9. The franchiser will solve my business problems for me; after all, thats why I pay an ongoing royalty fee. 10. Once I open my franchise, Ill be able to run things the way I want to.
767
Detecting Dishonest Franchisers

Claims that the contract is standard; no need to read it. Failure to provide a copy of the required disclosure documents. Marginally successful prototype or no prototype. Poorly prepared operations manual. Promises of future earnings with no documentation. High franchisee turnover or termination rate. Unusual amount of litigation by franchisees.
768
Detecting Dishonest Franchisers

Attempts to discourage your attorney from evaluating the contract before signing it. No written documentation. A high pressure sale. Claims to be exempt from federal disclosure laws. Get rich quick schemes, promising huge profits with minimal effort. Reluctance to provide a list of existing franchisees. Evasive, vague answers to your questions.
(continued)
769
The Right Way to Buy a Franchise

Evaluate yourself - What do you like and dislike? Research your market. Consider your franchise options. Get a copy of the franchisers Uniform Franchise Offering Circular (UFOC) and read it. Talk to existing franchisees. Ask the franchiser some tough questions. Make your choice.
770
Factors That Make a Franchise Appealing

Unique concept or marketing approach Profitability Registered trademark Business system that works Solid training program Affordability Positive relationship with franchisees
771
Trends Shaping Franchising

Changing face of franchisees International opportunities Smaller, nontraditional locations Conversion franchising Multiple-unit franchising Master franchising Piggybacking (Combination franchising) Serving baby boomers
772

Acquisition and Restructuring Strategies

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CHAPTER 7

STRATEGIC ACTIONS: STRATEGY FORMULATION

Acquisition and Restructuring Strategies

Mergers, Acquisitions, and Takeovers: What are the Differences?

Reasons for Acquisitions and Problems in Achieving Success

2007 Thomson/South-Western. All rights reserved.

Reasons for Acquisitions

Learning and developing new capabilities

Reshaping firms competitive scope

Cost of new product development

Lower risk than developing new products

Increase speed to market

2007 Thomson/South-Western. All rights reserved.

M&A : Background & Scenario

M&A : Background & Scenario...Contd.

M&A in 2006-07 - $ 3.6 Trillion

Indian Scenario - Major Deals

2007 Thomson/South-Western. All rights reserved.

Coping With China's Financial Power

2007 Thomson/South-Western. All rights reserved.

2007 Thomson/South-Western. All rights reserved.

2007 Thomson/South-Western. All rights reserved.

2007 Thomson/South-Western. All rights reserved.

2007 Thomson/South-Western. All rights reserved.

2007 Thomson/South-Western. All rights reserved.

Objective of our competition policy

enhanced investment & technological

2007 Thomson/South-Western. All rights reserved.

Progress made in Indian competitive Policy

2007 Thomson/South-Western. All rights reserved.

Acquisitions: Increased Market Power

Acquisitions intended to increase market power are subject to:

Acquisitions: Increased Market Power (contd)

Related acquisitions: firms in related industries

2007 Thomson/South-Western. All rights reserved.

Market Power Acquisitions

Market Power Acquisitions (contd)

2007 Thomson/South-Western. All rights reserved.

Market Power Acquisitions (contd)

2007 Thomson/South-Western. All rights reserved.

Acquisitions: Overcoming Entry Barriers

Acquisitions: Cost of New-Product Development and Increased Speed to Market

2007 Thomson/South-Western. All rights reserved.

Acquisitions: Lower Risk Compared to Developing New Products

2007 Thomson/South-Western. All rights reserved.

Acquisitions: Increased Diversification

2007 Thomson/South-Western. All rights reserved.

Acquisitions: Reshaping the Firms Competitive Scope

2007 Thomson/South-Western. All rights reserved.

Acquisitions: Learning and Developing New Capabilities

Problems in Achieving Acquisition Success

Managers overly focused on acquisitions

Problems with Acquisitions

Too much diversification

Inability to achieve synergy

2007 Thomson/South-Western. All rights reserved.

Problems in Achieving Acquisition Success: Integration Difficulties

Problems in Achieving Acquisition Success: Inadequate Evaluation of the Target

Evaluation requires examining:

Tax consequences of the transaction

Problems in Achieving Acquisition Success: Large or Extraordinary Debt

2007 Thomson/South-Western. All rights reserved.

Problems in Achieving Acquisition Success: Inability to Achieve Synergy