STRATEGIC MANAGEMENT

ACQUISITIONS
AND
RESTRUCTURING

Prepared by:
JOAN VANESSA B. APOSTOL
JOHN ALDEN C. PULUTAN

ACQUISITIONS
A merger is a transaction in which two firms agree

to integrate their operations on a relatively coequal

basis because they have resources and capabilities
that together may create a stronger competitive
advantage.
An acquisition is a transaction in which one firm

buys controlling or 100% interest in another firm

with the intent of more effectively using a core
competence by making the acquired firm a
subsidiary business within its portfolio.
A takeover is an acquisition in which the target firm

did not solicit the bid of the acquiring firm.

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CATEGORIES OF MERGERS AND ACQUISITIONS:

Vertical merger

A firm acquiring a supplier or

distributor of its good or
service

Horizontal merger

A firm acquires a former

competitor

Product extension merger

A firm gains access to

complementary products
through an acquisition

Market extension merger

A firm gains access to

complementary markets
through an acquisition

Conglomerate merger

There is no strategic relatedness

between a bidding and a target
firm

HORIZONTAL
MERGERS

VERTICAL
MERGERS

PRODUCT
EXTENSION
MERGER

PLDTs SMART Telecommunication

acquired Sun Cellular in 2010

Chinas Lenovo Group has agreed to

purchase Brazilian electronics maker
CCE, the deal valued at a base price
of US$ 148 million

Samsung Electronics acquired a

controlling stake in Korean ultrasound
equipment firm Medison in 2010 and
its affiliate later for around $300
million in total, its biggest ever
acquisition in the healthcare industry.

Attributes of a Successful Acquisitions

ATTRIBUTES

RESULTS

1. Acquired firm has assets and/or

resources that are
complementary to the acquiring
firms core business

High probability of positive synergy

and competitive advantage by
maintaining strengths

2. Friendly acquisition

Faster and more effective

integration; possibly lower premiums

3. Careful and deliberate selection

of target firms and conduct of
negotiations

Acquire firms with complementaries

and avoid overpayment

4. Financial slack (cash and/or

favorable debt position)

Financing (debt or equity) easier to

obtain and less costly

5. Merged firm maintains low-tomoderate debt position

Lower financing cost, lower risk

(e.g., of bankruptcy and avoids
trade-offs associated with high debt)

6. Has experience with change and

is flexible and adaptable

Faster and more effective

integration; facilitates achievement
of synergy

7. Sustained and consistent

emphasis on R&D renovation

Maintain long term competitive

advantage in the market
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Reasons for Acquisitions and Problems in Achieving

Success
Reasons for
Acquisitions
Increased
market power

Problems in Achieving
Success
Integration
difficulties

Overcome
entry barriers

Inadequate
evaluation of
target

Cost of new
product
development

Large or
extraordinary
debt

Increased
speed to
market

ACQUISITION
S

Inability to
achieve
synergy

Lower risk
compared to
developing new
products

Too much
diversification

Increased
diversification

Managers overly
focused on
acquisitions

Avoid
excessive
competition

Too large
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Rules for Bidding Managers:

1.
2.
3.
4.
5.
6.

Search for valuable and rare

economies of scope.
Keep information away from other
bidders.
Keep information away from target.
Avoid winning bidding wars.
Close the deal quickly.
Operate in thinly-traded acquisition
markets.
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Rules for Target Firm Managers:

1.

2.

3.

Seek information from bidders.

Not only should a bidding firm inform itself
about the value of a target, target firms must
inform themselves about their value to potential
bidders. In this way, they can obtain the full
value of their assets.
Invite other bidders to join the bidding
competition.
by inviting other firms into the bidding process
the target firm increases the competitiveness of
the market for corporate control.
Delay, but do not stop, the acquisition.
to increase the probability of receiving more
than one bid, target firms have a strong
incentive to delay an acquisition.
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The Wealth Effects of Target Firm

Management Responses to Acquisition
Effects
Responses that reduces the wealth of a
target firm:
Greenmail
The target firms management purchases any of
the target firms stocks

Standstill agreements
The bidding firm agrees not to attempt to take
over the target firm for a period of time
Poison pills
Any variety of actions that target firm managers
can take to make the acquisition expensive
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Responses that do not affect the wealth of

the target firm:
Shark repellents
A variety of relatively minor corporate
governance changes that make it difficult to
acquire a target firm

Pac Man defense

The target firm takes over the bidding firm

Lawsuits
The target firm managers files a lawsuit against
the bidding firm
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Responses that increases the wealth of the

target firm:
Search for white knights
Another bidding firm that agrees to acquire a
particular target in the place of the original
bidding firm

Creation of bidding auctions

Golden parachutes
Its a compensation arrangement between a firm
and its senior management that promises a
substantial cash payment if their firm is acquired

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RESTRUCTURING
Restructuring refers to changes

in the composition of a firms set

of businesses and/or financial
structure.

Downsizing is a reduction in the

GENERAL MOTORS
The sweeping layoffs GM and
other automakers implemented
in response to a drop in sales
were a devastating blow to their
workers and to local economies.
GM layoff of between 75,000
and 100,000 workers between
2008 and 2010

number of employees, and

sometimes in the number of
operating units, but it may or
may not change the composition
of businesses in the corporations
portfolio.

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AGILENT TECHNOLOGIES
Agilent Technologiesspun out
ofHewlett-Packardin 1999,
formed from HP's former testand-measurement equipment
division.

GIBSON GREETING CARDS

In 1964 CIT Financial Corporation
acquired Gibson Greeting Cards, but
in 1980 CIT Financial was acquired
by RCA and Gibson became a
subsidiary of RCA. In 1982, the
company Gibson Greeting Cards was
acquired by a financial group headed
by Wesray Capital for a purchase
price of $80 million US Dollars (USD).
A year and a half later, they went
public with the company again. The
total value of the company at this
point was $220 million USD.

Downscoping refers to

divestiture, spinoffs, or
some other means of
eliminating businesses
that are unrelated to a
firms core businesses.
A leveraged buyout is a

restructuring action
whereby the managers of
the firm and/or an external
party buys all of the
assets of the business,
largely financed with debt,
and takes the firm private.

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Restructuring the intervention of the

corporate office in a new business that
substantially changes the assets, capital
structure, and/or management, including
selling off parts of the business,
changing the management, reducing
payroll and unnecessary sources of
expenses, changing strategies, and
infusing the new business with new
technologies, processes, and reward
systems
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Some benchmarking ratios commonly

used in rationalizing the need for
restructuring are headcount-to-salesvolume, or corporate-staff-tooperating-employees, or span-ofcontrol figures.

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The Three Primary Types of Restructuring

Activities
1.

Asset Restructuring: The sale of

unproductive assets, or even whole lines of
businesses, that are peripheral.

2.

Capital Restructuring: Changing the

debt-equity mix, or the mix between
different classes of debt or equity.

3.

Management Restructuring: Changes in

the composition of the top management
team, organization structure, and reporting
relationships.
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Restructuring and Outcomes

ALTERNATIVE
S

SHORT-TERM
OUTCOMES

Downsizing

Reduced
labor cost

LONG-TERM
OUTCOMES

Loss of human
capital
Lower
performance

Downscopin
g

Reduced
debt cost

Higher
performance

Emphasis
on strategic
controls
Leveraged
buyout

High debt
costs

Higher risk
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References:

Strategic Management: Competitiveness and

Globalization, Concept and Cases, Michael A. Hitt, R.
Duane Ireland, Robert E. Hoskisson, (2006)

Strategic Management: Creating Competitive

Advantages, Gregory G. Dess, G.T. Lumpkin, Alan B.
Eisner, (2010)

Strategic Management: Concepts and Cases, Fred R.

David, (2011)

Strategic Management: Formulation, Implementation

and Control, John A. Pearce II, Richard B. Robinson Jr.,
(2009)

Strategic Management: Awareness and Change, John

Thompson, Frank Martin, (2010)

http://smallbusiness.chron.com

http://en.wikipedia.org/wiki/

http://www.gmanetwork.com/news/story/216421/econom
y/

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