Motives for Merger & Acquisition Acquisition. Strategic motives are often related to the reasons for fo r diversication in general Strategic motives can be categorized in three main ways:
Extensions An organization would like to extend in terms of geography, products and markets. Acuisitions can be speedy ways of extending international international reach. !t can a also lso be an e"ective mode of extending into new markets, as in diversication. •
Consolidation #$A can applied by consolidating the competitors for increasing scale, e%ciency and market power by reducing competition. !t has some advantages:& 'onsolidation increases market power by reducing o competition. For example company can increase their product prices for the customer. o 'onsolidation increases their e%ciency by sharing resources. For example& using o%ce or distribution channel. •
Capabilities: #$A can be formed formed to increased increased company(s capabilities. capabilities. Some ability which is absence can be achieved by #$A. For examples #icrosoft acuired acuired )*+!A mobile manufacturing unit for enhancing their capabilities to be a manufacturer of #obile phone. !n&place of re&searching re&searching and establishing a new technological unit. •
Financial motives #$A often created with the aim of using optimal nancial resources resources than improving direct real business. here are three main nancial motives:
Financial eciency A 'ompany with a strong balance sheet -that means, have more cash ow from sales /cash rich0 may acuire/merge acuire/merge with other company who have weak balance sheet. For example high debt. 1hat is the motive for it2 •
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he company who has high debt can save their interest interest payment payment by using cash assets of stronger company. o pay o" its debt. And for the stronger company& it enables them to be a good bargaining power for acuiring the weaker company in a good price.
Tax eciency Sometimes there may be tax advantages. -#$A may be formed also for reducing the combined tax burden.0 For example! 'ompany can get ax benet from di"erent tax rule between industry or country by transferring prot within the company. •
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Asset stripping or unbundling 3 Sometime company acuired other company with the aim of assets stripping. "t is a process in which a company takes&over other company, whose underlying /fundamental assets are worth more than the price of the company as a whole. han rapidly sale o" the acuired assets to various buyers for a total price in excess of original price as a whole. his method often used to repay the debt of the company which may have been increased due to the acuisition to increasing their net worth. •
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Managerial motives for M&A #$A often created by managerial interests rather than shareholders( interests. (It may also called self-serving rather than eciency-driven0. !t has two reasons:
#ersonal ambition $ #anager personal nancial incentives can be received, if %e achieved short&term growth or share&price targets4 and this is easily achieved by acuisitions rather than the lower&prole organic growth. Also large acuisitions attract media attention and boosting personal reputations4 giving friends and colleagues greater responsibility or better 5obs. •
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and'agon e(ects 3 #anagers may be recognized as conservative, if he doesn(t follow the #$A trend4 Also pressure comes from shareholder for #$A4 And the company may itself become a takeover target. So this is also reason for #$A.
)trategic Alliances !n #$A, ownership is completely changes but on the other side, 'ompanies also may work together in strategic alliances with partial changes in ownership or with&out changing ownership. So )trategic Alliances is where two or more organizations share resources and activities to follow a common strategy. -to achieve common set of ob5ectives.0
*)trategic alliances are partnerships in which two or more companies work together to achieve ob5ectives that are mutually benecial. 'ompanies may share resources, information, capabilities and risks to achieve this.0
Examples of successful strategic alliances Ford and C%rysler have reduced operational costs dramatically by using alliances Mobil! C%evron and Amoco have decreased their operational cost by 67 to 87 percent with some of their suppliers +alMart has reduced their costs by working with suppliers, -they have increased productivity and they have decreased their costs as well their prices.0 Microsoft is successful for its 9box games console. hey developing a stronger network of games developers than its competitors such as Sony lay Station •
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here are two main types of ownership in strategic alliances: Equity alliances involve the creation of a new business unit that is owned separately by the partners. he most common form of euity alliance is ,oint ventureo ;or example, "M! .e'lett #ac/ard! Tos%iba and )amsung are partners in research for semiconductor technologies. 0onequity alliance is formed without the commitment implied by ownership. his alliance is often based on contracts. o For example, the 'anadian subcontractor #agna has contracts to assemble the bodies and frames for Ford! .onda and Mercedes. •
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Motives for Alliances can be categories into four 3 6. Scale Alliances 8. Access Alliances =. 'ollusive Alliances
<. 'omplementary Alliances
)cale Alliances !n Scale Alliances 'ompany can be combine for their target ob5ectives such as lower cost of product or service, more bargaining power to the suppliers and spreading the risk. •
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>ere in the gure, ability of A & company may be same, but when they work together they can get more advantage rather than alone.
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For example! when the two companies are united, there will be no more competition of purchasing of raw materials. So as an input of production, companies can purchase their raw materials at lowers cost. Similarly as an output, companies can sale their products or service at a better price. !n ?angladesh there are several ship breaking companies, who are the ma5or supplier of row steel. o purchase a big old ship, big amount of money is needed. So companies can able to purchase it by 5ointly but they cannot do it by alone.
Access Alliances •
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!n Access Alliance form, companies can get full access to their partner capabilities in production and sale. !n Access Alliances ;igure, >ere A is western 'ompany need a local distributor is ! to enter the market. For example !n ?angladesh @ocal trading or retailing company )amed Abedin Equipment 1td . his company has goods marketing and selling ability of selling ?*S'> -erman0 power tools product to local market. So 'ompany -A?B@0 has taken licensing alliances in order to access inputs from ?*S'>.
Complementary Alliances •
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hese also similar, to access alliances but the combine t'o company, bring together 'omplementary strength, in order to overcome their individual weaknesses. >ere each company can overcome their weakness by partner(s strength. >ere in ;igure& Carker shading indicate *rganization 3 A(s strength. So can overcome its weakness by A2s Strength. For Examples 3 )304 & Bricson. Ericson had lack of rand image but they have Strength of #obile phone manufacturing technology. Similarly S*)D had weakness of #obile phone manufacturing technology but S*)D has good ?rand image all over the world. So by 5oint venture, Sony and Bricson have overcome their weakness. ?y 877E they had reached to world = th mobile phone company.
Collusive Alliance: •
*ccasionally 'ompany can work together with&out any public contract or work together in a secret way, without showing any visual appearance. !t is called Cartels.
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1hen the number of compotator is small and the market/sales are big, these 'ollusive alliances are formed. ?y combining together into cartels, they reduce competition in the marketplace. !t(s enabling them to set higher prices for customers and they can also purchase raw materials at lower prices from their suppliers.
Ma/ing cartels only for&prot are generally illegal, so there is no public agreement between them. So here in ;igure&& there is no 5oining singe. For example! mobile phone operators are often blaming of collusive behavior.
)trategic alliance processes wo elements are very important for success of alliances: one is Coevolution, 3 "n coevolutionary point of view companies need to emphasis on exibility and changes of environment, competition and strategies for their success. And other element is Trust 3 #utual rust is highly important for the success of alliances overtime. )o at di(erent stages in the life span of a strategic alliance, these two elements are vital factor for the Strategic alliance processes. >ere in gure there are several stages of Strategic alliance processes. ;irst Stage is
Courts%ip So in the initial process of alliances, potential partners need to emphasis on organi5ational 6t. And both parties interest is reuired to make alliances. So partners need to be careful and take time to build strong foundation of their alliances. •
0egotiation !n the foundation process, )egotiation is very important. he partner should be very careful to set the proportion of ownership, prot $ @oss sharing and managerial responsibilities. And they should be very careful of making clear $ correct contract. •
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he next stage is )tartup At these stage companies are likely to invest material, human resources based on their contract. And mutual trust is very important at this stage. !n start&up stage, without mutual trust, making ad5ustments and handling misunderstandings has become very hard. )o if! it is not do perfectly alliances me be break up. Maintenance •
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!n the maintenance process the companies should be more active, to manage to allow for changing external situation. hey need to be more co&operative in tuning day&to&day work. >ere rust $ 'o&operative work is extremely important because, in this stage, when partners are working closely, they can begin to learn each other(s ability, strength and weakness. So this learning can enable them to be more powerful in competition. So if they want to maintain their strategic alliance they have to trust each other.
he nal stage is Termination . After the life span of alliances, when the primary purpose or ob5ectives is accomplished as from the contract, termination is a matter of completion rather than failure. !f the alliances will successful, partners can extend or create new alliances. Sometimes one partner more successful than other. So termination should be managed carefully because if needed partners may come together again for new pro5ects in the future. •
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