Inflated share prices and low-interest debts have few parallels, as these are the financial instruments of various origins and consequences. In fact, to apply the inflated share price as an instrument of acquisition, the CEO team will need to analyze the latest dynamics of prices and study the forecast for the nearest price dynamics.
As for low-interest debt as the acquisition tool, it should be emphasized that the company often subjects it to a particular financial danger, as there is a strong necessity to analyze the market situation, associated with the matters of financial performance in the business sphere.
Considering the parallels of these tools, it should be stated that these are closely linked with the matters of debt security and the stability of the company’s position on a share market. Thus, these tools may be analyzed on the instance of the Vodafone and Mannesmann takeover. It is stated that Vodafone preferred to use the inflated share prices as an instrument of acquisition. The reason for this financial operation was closely associated with the stable growth of the share prices at Mannesmann. Additionally, Mannesmann accounted for about 12 percent in the year 1999 and its outperformance made a huge impact on the growth of the Corporation over the years. As with the leading Corporations in telecommunications, the market value of Mannesmann shares and equity reflected its price-earnings, which was quite similar to Vodafone’s share per earning.
The parallels are pointing at the possibility of bankruptcy if applied improperly. Thus, debt security should be considered properly for both these tools, and distressed investors will have to convert their stakes into equity ownership capital structure. In the light of this statement, the low-interest debts, as well as inflated share price acquisition tools violate the fulcrum security principles of the companies and endanger the stability of the capital structure.
Considering the principles of mergers in Germany, low-interest debts, as well as inflated share prices are more suitable for friendly merger negotiations, which are preferred more in comparison with public tender offers and hostile bids.
On the other hand, the parallels of these tools are associated with the German model of the financial market of acquisitions and mergers. Hence, the supervisory boards of the companies are interested in the further successful development of the company, hence, the inflated share prices, as well as debts will not be used as the tools of company elimination, and however, they are used for weakening the company’s positions to lower the merger costs. Share market valuations, as well as dividends, become lower; hence, the CEO of a company becomes less reluctant for merging offers. Finally, ownership becomes concentrated not only on financial issues of the company’s activity, and implements the total control over the company’s activity, thus, improving its financial position.
Finally, the parallels of these tools are closely associated with the origins of the company, and the capital structure which is required for its effective activity. If the company is equity-financed, the inflated share prices will not be regarded as an effective acquisition tool. The same is on the matters of low-interest debt in debt-financed companies. Consequently, the parallels and the application of these tools should be analyzed properly before undertaking merger or acquisition actions.
In today’s competitive world, when globalization has taken the front seat in almost all parts of the world, the companies have to face enormous amount of competition. It helps organizations to avoid investing considerable amount of money in combating the competition. For avoiding unnecessary blockage of money into things, which do not lay any output for the firms, the companies these days resort to corporate restructuring processes.
Corporate restructuring involve mergers and acquisitions. On the bigger picture, the mergers and acquisition leave lasting effects on the performance and fate of the company.
A merger is the coming together of two companies to form one larger company. Such actions in the business world are normally voluntary and they will involve cash payment to the company that is targeted or even stock swap. There may be a stock swap, which is mostly used by many companies since it always has the provision of allowing the shareholders from both companies to share all the involved risks in the business deal. The merger often has effect on the earnings of the company as well as on their market goodwill. Hence, the price of the share is also affected.
Whenever any company goes through phases of restructuring, the expected output could be either negative or positive. In a way, a merger may be similar to acquisition but in merging companies, the resulting company will always have a new name, which may be a combination of the companies’ names. Branding of the resulting company will purely depend on the marketing and political reasons.
Thus as time continues to pass and competition tightens between companies competing for the same markets, the drive to merge will continue taking precedence. It should be remembered that the management of the companies plays a key role in the discussion of choosing a merger as a right strategy. It has been noted that a key element in mergers is to increase the competitiveness of the new organization and bring about better fortunes.
Major force driving this acquisition of merger between Merck’s and Medco
Mergers increase shareholder value and attract accrual of gains to the target company. Among the benefits, include the benefits of economies of scale, attempts by companies to form oligopolies and monopolies thereby creating market power, and need for diversification.
In essence, formation of mergers is attributed to waves in an industry, prompting different companies to react by uniting and clustering to enhance their survival. The failure of the efficient market hypothesis gives rise to acquisitional takeovers, in which companies strive to increase their market power by accumulating material, financial, and human resources.
Mergers are largely associated with increased shareholder value and company profitability, usually through expansions, diversifications, and cost savings (Gugler, Mueller, Yurtoglu and Zulehner, 2003).
By using share values for the merged companies before and after the mergers, the researchers report that most of such mergers result in increased share value, implying that the wealth of the shareholder and the value of the company in the eyes of investors have increased. However, the value of shares of the acquiring firm and those of the target firm differ in relation to market conditions and public perceptions regarding the merger (Hunt, 2009 pp. 5).
Returns on the mergers differ from company to company, with value firms reporting higher returns on average compared to growth firms (Frankel, 2005, pp. 153). The variations in returns on the mergers result from varying degrees of risks, and investor forecasts in relation to previous company performance. Similarly, the researchers attribute differences in company profitability following the mergers to different accounting and reporting practices, and the variation in industrial shock waves necessitating the mergers.
Identifying the actual benefits resulting from mergers is challenging, since it is difficult to identify underlying sources of gains from mergers, and studies suggest that all benefits associated with the mergers accrue to the target firm shareholders (Andrade, Mark and Erik, 2001 pp. 106). As such, it would be difficult to establish the actual benefits resulting from mergers.
Companies form mergers to increase their competitiveness by accessing a wider market, new skills, and technologies. With globalization, it is extremely difficult for a pharmaceutical company to succeed on its own. By forming mergers, companies can access new markets, new products, and extra finances.
However, mergers are not always successful unless both parties are benefitting. An effective merger must ensure that both parties derive benefits from it. Once a company enters into a merger, it may loose its sovereignty. This means that the company cannot get out of the merger in the future even if it has resolved its financial difficulties. It is therefore important to maintain independence so that if the merger fails to succeed, the companies can part ways and continue their operations as independent companies.
Negotiators must always act in the best interest of the shareholders because it is their responsibility to ensure that they maximize the profits of the shareholders. If only one party is benefitting, the losing party should then not sign the deal. The parties should instead go back to the negotiating table and create a deal that increases the net value of both parties.
The most general reason for the success of merger and acquisition is that many firms try to overcome concentration risk. Firms, which are excessively dependent on a single product, are exposed to the risk of the market for that product. Diversification by way of merger and acquisition reduces such risk.
In addition, firms often use merger and acquisition as a strategy to enter into new market or a new territory. This gives them ready platform on which they can further build their operations. Tax shield is one another aspect of consideration. Tax shields play an important role.
Firms in distress have accumulating past losses and unclaimed depreciation benefits on their books. A profit making taxpaying firm can derive benefit from these tax shields. They can reduce or eliminate their tax liability by benefiting from a merger of these firms. In some countries, tax laws do not permit passing of such tax shields to the acquiring firm except under specific circumstances (DePamphilis, 2009).
From the case, the merger was meant to provide market for their products. The Executive Vice President, Sales & Marketing believed that a merger was going to open up new markets that are in the managed health care market. Medco’s had kept marketing database which was going to be used to l create market expansion opportunities.
However, the Chief Operating Officer did not consider benefits but thought of effects of cultural and operational differences. The merger was the right strategy because it would solve the problems that the two companies were facing. Merging the two companies would create a company that transcended national borders thus increasing sales. A merger is the most efficient way to enter a new market or increase distribution line.
The company can respond to competitive cost pressures through economies of scale. For Merck & Company, the merger would reduce marketing cost by $1billion and expand sales while Medco would be able to penetrate the American market and gain financial support. However, the merger failed to materialize because the two companies could not agree on the terms of control.
Merger is an important business approach that is directed towards expanding the business (Gugler, Mueller, Yurtoglu and Zulehner, 2003). Merger may help an organization to increase its monopoly power on one hand, through increasing its economies of scale and scope and on the other, it may complicate its operational procedure and destroy inter and intra departmental harmony through increasing its size beyond manageable level.
Actually, merger is not a mathematical cloth that will always yield two by the summation of two one. Success of merger depends upon extreme managerial proficiency, nature of the product and market as well as the customer’s psychology immediately after the merger.
It has been observed that in financial sector, when two banks merge, the credit deposit ratio incurs a set back. It might affect the rate of profit negatively. Therefore, it may be concluded that the outcome of merger is always uncertain and if it fails to generate substantial positive outcome, the stockholders of the respective organization might suffer a loss.
Synergies of the merger
The merger agreement was expected to provide an opportunity to Merck & Company to increase market share in the industry as a leader and the highest revenue earner and with the highest market capitalization. Market growth was a major ground behind this acquisition the company wanted to ensure an increasing share in the managed care. This will ensure the growth of company earnings. There may be elimination of overlapping management and consolidation of business support functions.
The benefits of the merger are witnessed through the company’s ability to adjust to market demands and the large market share attained through the merger. In the long term, the merger is likely to be beneficial to the companies due to the increment in revenues and overall cost saving.
Merging makes it cheaper for companies to access materials from suppliers, and can get such materials at a discount due to the economies of scale. This is beneficial in the long-term performance of the company since it leads to more savings, hence more investment and overall increased profitability.
The benefits of mergers are usually traced to shareholders and company performance, and these are derived from the value of shares. The merger turned company into one of the largest employers and is expected to increase the company’s revenue both in the short term and in the long term.
Following the positive changes in the company’s share value, the merger supports the existing literature on the claim that mergers increase shareholder value and company profitability. Additionally, the merger follows the observation that investors use a company’s previous performance record to predict a merger’s future performance (DePamphilis, 2009).
The ratio of exchange
When a firm trades its stock for the shares of another firm, the number of shares of the acquiring firm must be determined. The first requirement, of course, is that of the acquiring company have sufficient authorized and unissued and/or treasury stock ordered to complete the transaction. Often the repurchase of shares, is necessary in order to obtain sufficient shares for the transaction.
Since the acquiring firm is generally larger and has a market for its shares, the acquiring firm offers a certain amount for each share of the acquired firm.
This amount is generally greater than the current market price of publicly traded shares. The actual ratio of exchange is merely the ratio of the amount paid per share of the acquired firm to the market price of the acquiring firm pays the acquired firm in stock, which has a value equal to its market price. However, price has been stated of $ 6.6billion for acquisition of Medco Containment Services Incorporated.
Benefits of merger
The two companies will experience exponential growth in market share, since they end up dealing with a bigger organization than they did before. They also gain from an expanded network, which literally means dealing with more people and thus gaining more contacts with Medco’s database.
This is a good prospect for business expansion. The benefit in the long run to the shareholders is that they can gain when the merged company does grow as profit margins increase. This happens when the new firm finally settles into business and gains new ground by benefiting from the cost cutting measures.
Among the gains of the employees are that those who survive usually end up working for higher wages once the merger picks up and the gains begin to be seen. Higher pay packages are offered them, they experience, and exciting career growth provided that the merger is successful.
This offers them greater opportunities and personal development prospects than they had before. There is a better prognosis for career advancement. Promotion means handling more people over a larger scope. This increases the gains that go with career advancement (DePamphilis, 2009).
Even then, loyal consumers, especially the corporate ones are always considered when major decisions are being made. They are the ones who keep the companies going in the lean times, and with time, the companies learn that rubbing such customers the wrong way is economic suicide. Therefore, they do not emerge as losers even in a merger.
The main advantage to consumers is the improvement in quality that results from the outstanding features of each individual company’s products being consolidated into one better whole. Apart from that, the consumer benefits from wide ranging products over and above what they had in the individual company before, especially in areas where only one of the partner companies was represented.
Competitive reactions to Merck’s acquisition of Medco
After Merck announced intention to merge with Medco competitors reacted quickly by merging with companies, which were vertically in their supply chain. British drug maker SmithKline Beecham planned to merge with Diversified Pharmaceutical Services Incorporated, at $2.3 billion while Roche Holdings Limited announced plans acquire Syntax Corporation. One year later Eli Lilly and Company intended to acquire PCS Health Systems from McKesson Corporation for $4 billion.
Conclusion
Mergers may have some economies of sale and scope, it is not materialized in every case, and hence there may be failures. Again, the benefits or synergies may take some time to reflect and it is usually reflected first in the value of the combine firm as against the sum of values of independent firms. In case of acquisitions, it is important for the bidding firm, which is the combined firm after the deal is complete, to perform well and show an improvement in valuation.
References
Andrade, G., Mark M. and Erik S. (2001). “New Evidence and Perspectives on Mergers.” Journal of Economic Perspectives 15, no. 2 (2001): 103–120.
DePamphilis, D., (2009). Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions. London: Academic Press.
Frankel, M. (2005). Mergers and acquisitions basics: the key steps of acquisitions, divestitures, and investments. San Francisco: John Wiley and Sons.
Gugler, K., Mueller, D., Yurtoglu, B. & Zulehner, C. (2003). “The effects of mergers: an international comparison.” International Journal of Industrial Organization 21, no. 2003 (2003): 625-653.
Hunt, P. (2009). Structuring Mergers & Acquisitions: A Guide to Creating Shareholder Value. New York: Aspen Publishers Online.
The paper entails an analysis of the telecommunication industry with regard to cross-border merger and acquisition. An analysis of the political, legal and social environment between the two firms involved is given.
The essay also evaluates the various reasons for the increased customer advocacy with regard to merger and acquisitions. Some of the key reasons cited relate to the high probability of unfair market practices and development of a monopoly. Powerful mergers and acquisition may result into the firm being involved itself in unethical business practices.
In addition, some of the pitfalls which the customers may experience as a result of merger and acquisition are identified and discussed. Some of these relate to lack of effective customer service and decline in product quality.
The essay also identifies, various ethical dilemmas involved in such a merger and acquisition. Finally a conclusion and a number of recommendations on how to deal with such a situation are outlined.
Introduction
Telecommunication industry has become very competitive in the 21st century due to the intense investment in research and development. In an effort to develop a high competitive edge, firms in this industry are incorporating the concept of merger and acquisition. Mergers and acquisition also takes place between firms of different countries which is referred to as cross-border mergers.
Examples of firms which operate in this industry include Hewlett Packard which is located in the United States and 3-Comm Company which is located in the United Kingdom.
The two firms deal with production of telecommunication and information technology products. In effort to attain synergy in its operation, the firms’ management teams have made acquire enters into a merger and acquisition. The UK legislation supports mergers and acquisition by enabling the shareholders to redeem their shares if they do not want to participate in the merger.
In both the United States and the United Kingdom, the political environment has been conducive for business operation. For example, there are a number of anticompetitive rules which are aimed at regulating business operation.
In their operation, both 3-Comm and Hewlett-Packard companies incorporated anti-trust laws. However, United Kingdom has a relatively high political tension which limits firms from undertaking mergers and acquisition across borders compared to United States. In addition, there is a high probability of United States government blocking conduction of mergers and acquisition between firms within the same industry compared to the UK government.
This means that for Hewlett-Packard to acquire a firm which is not located in the domestic market such as 3-Comm, the government is intensely .According to Marsden (2007, para. 3), there is a probability of 23.8% of government intervention in a merger and acquisition in US compared to 1.7% in intervention in the UK.
Reasons for increased concern by consumer advocates
In an effort to attain its profit maximization objective via formation of mergers and acquisition, there is a high probability of firms involved being involved in unfair market practices. For example, the firms may disseminate deceptive market information regarding its products and services with the objective of developing customer loyalty (Bloomberg Business Week, 2010).
This is one of the factors which have necessitated increased customer advocates. In addition, formation of merger and acquisition may result into formation of a monopoly within a particular industry. One of the ways through which this can be attained is by developing a large capital base thus creating a barrier to entry.
This arises from the fact that small scale entrepreneurs who may want to venture the industry will be required to have a substantial amount of capital base. For example, there is a high probability of a firm with a capital base of $ 16 billion influencing the market.
For example, it will be difficult for other small firms to venture the industry. The resultant effect is that the new firm will have an upper hand in controlling market prices for the goods produced since the force of demand and supply which is paramount in the determination of market prices will be eliminated.
Therefore, there is a high probability of the new firm established exploiting consumers by setting prices at a relatively high point than the existing market price. This can be achieved via lessening competition. The price the consumers pay for the products and services may not be reflective of the value received upon consumption.
From the example, it is evident that there is an ethical dilemma in relation to the benefits and cost associated with the merger. The merger may benefit the customer via creation of high quality goods. However, the new entity formed may have an influence on the pricing of the products. The resultant effect is that the firm might become a monopoly.
Pitfalls customers might deal with as a result of merger and acquisition of large companies
Production of low quality goods
Considering the competitive and dynamic nature of the telecommunication industry, ensuring that the customers attain a given level of satisfaction is paramount. One of the ways through which this can be attained is by ensuring that the firm’s products are of high quality. Formation of merger and acquisition may result into a decline in the quality of products manufactured in the short term. This has a negative impact customer satisfaction.
Formation of a merger and acquisition by two large companies has the effect of limiting competition in the industry due to the domination by the new entity formed. This coupled with decline in the quality of products reduces the choices available to customers. There is a strong correlation between product quality and the level of customer satisfaction (Buono &Bowditch, 2003, p. 234).
Considering the fact that Hewlett-Packard is one of the major manufacturers of telecommunication and information technology products, its merger with Compaq would result into a decline in diversity of telecommunication and information technology products and hence a decline in customer satisfaction.
On the other hand, there might be a difference in the level of commitment between the two firms. For example, as a result of the acquisition the quality of the new entity’s product may be compromised due to lack of attainment of a criterion on the standard production criteria between the two firms (Yun-Qing, 2009, para.8).
Reduction in the level of customer service
According to Bowditch and Buono (2003, p. 234), merger and acquisition involving two large firms may negatively affect the customer service. There is a high probability of the two firms involved in a merger and acquisition failing to attain the desired synergy. One of the core factors which might contribute to this is existence of cultural differences between the two firms.
Due to existence of cultural differences in between Hewlett-Packard and 3-Comm Company, it may take a considerable duration of time before the two firms become fully integrated.
Existence of cultural differences between the two firms involved in may limit the firm’s commitment in offering quality service to the customer. This arises from the fact that the consumers may take a considerable duration before they are conversant with their roles.
Conclusion and recommendation
Despite the benefits associated with mergers and acquisition, there are a number of challenges which may be experienced. Merger and acquisition involving two large companies may affect the quality of products produced by being involved in unfair market practices (National Archives and Records Administra, 2010, p.413). This may result into lack of customer satisfaction.
In addition, cross-border mergers and acquisitions may have an impact on the effective operation of a market. This arises from the fact that the new entity formed may be a monopoly which might lessen competition in the market. This may influence the effectiveness of market forces in the determination of price.
In order to overcome these challenges, firms involved in cross-border merger should undertake a comprehensive analysis of the political, legal and social differences existing between the two countries. In addition, these firms should conduct an analysis of cultural-differences existing between them. This will help in determining the cultural-fit between the two firms.
Reference List
Bloomberg Business Week. (2010). Why customers hate mergers. Web.
Buono, A. & Bowditch, J. (2003). The human side of mergers and acquisitions: managing collisions between people, cultures and organizations. New Jersey: Beard Books.
Mardsen, T. (2007). Cross-border mergers and acquisition: the Asian perspective. Web.
National Archives and Administra. (2009). The United States government manual 2009-2010.
New York: Government Printin Office.
Yun-Qing, C. (2010). HP-3-Com merger heats up Cisco competition. Web.
The company Kraft Foods Group is one of the leading packaged food and beverage companies worldwide. The company’s net revenues are $18.3 billion and it has assets of more than $23 billion (Kraft Foods Inc., 2012). The company operates mainly in the USA and Canada, but it also collaborates with distributors who sale their products in other countries. The company sells its products to retail chains. Notably, Wal-Mart accounted for “approximately 25%” of the company’s “combined net revenues” (Kraft Foods Inc., 2012, p. 3).
The company, named J.L. Kraft & Bros. Company, was set up by Charles, Fred, Norman and John Kraft in Chicago in 1909. Since then, the company has been growing and developing into an international corporation. Interestingly, business increased 125% during 1910 and the brothers established a sales office in New York (Kraft Foods corporate timeline, 2012).
In 1910, the company patented new methods of producing food in tins. Acquisition and international expansion started as far back as 1920s for the company when they purchased the MacLaren Imperial Cheese Co., Ltd. in Montreal, Canada. In 1924, the company had a sales office in London. The company went through a number of mergers and acquisitions.
This brief account of Kraft Foods Group’s history suggests that merger and acquisition was a part of the company’s strategy from the first years of its existence. The company has entered a market with a new and rather revolutionary product as tinned cheese and meals were not common. It is clear that one of the major corporate strategies of the company has been expansion through mergers and acquisitions.
It is necessary to note that this strategy is quite winning as it enables the company expand rapidly. First of all, the company acquires new capabilities and improve efficiency by “acquiring a customer, supplier, or competitor” (DePamphilis, 2013, p. 5).
This strategy also contributes to diversification as the company can develop new products and enter new markets. This also helps adapt to the changing environment. Besides, mergers and acquisitions help reduce costs as newly acquired companies have facilities and resources so the company does not need to invest funds in development of such facilities.
It is necessary to add that the strategy has proved to be effective as the company is now one of the leaders of the market. Kraft Foods Group has understood opportunities and challenges of the market and managed to remain efficient. The company saved a lot of funds acquiring facilities of other smaller companies. At that, Kraft Foods Group also reduced the number of its competitors which is also important.
The company has also gone through a number of mergers. Notably, lots of companies are reluctant to merge as they are afraid to lose control over their business. Nonetheless, Kraft Foods Inc. is an illustration of successful operation through numerous mergers. The fact that the company remains one of the leaders in the market after severe financial crises suggests that in times of financial constraints merger and acquisition can be good options.
As far as local corporations are concerned, it is possible to single out Angus Meats, Inc. This corporation operates in the USA and is located in Washington State. Its revenue is over $5 million. Angus Meats, Inc. produces a wide range of meat products. The company sells its products through its distributors and directly to its customers.
The company’s customers are restaurants, hotels, educational establishments, health care units and so on. The company also gets orders online through its website (Angus Meats, 2014). It is one of the priorities of Angus Meats, Inc. to buy only high-quality meat from farming businesses.
Therefore, it can be a winning strategy to acquire a small farming business or merge with it. Thus, Angus Meats, Inc. will have stock to produce meat products. Admittedly, this should be a reliable partner having its customers and operating in another state. This will enable the companies enter new markets in the states they operate in and in other US states.
One of possible partners for merger or acquisition is Sugar Mountain Farm. This is a family run farm that raise a variety of animals (cattle, poultry), though the key product is pigs. The company has numerous clients who value its products for high quality. The company has slaughter facility and can produce whole and half pigs.
Notably, they have built a new facility and are looking for investors (Sugar Mountain Farm, 2014). Therefore, Angus Meats, Inc. can address the company and start negotiations on merger. Though, Sugar Mountain Farm is located in Vermont which is far from Angus Meats, Inc.
This can be a risky move though it can turn out to be an effective strategy as two companies can expand and market products in other states. Angus Meats, Inc. can invest money into acquisition of a facility by acquiring another company. It is also possible to construct the necessary facility on the basis of the slaughter house of Sugar Mountain Farm.
Thus, the two companies will have high-quality meat products that already have loyal customers in the two states. A number of acquisitions can help the companies expand their markets and even move to the international market.
It is also necessary to note that this merger should be accompanied by potent advertising campaign. The companies’ customers should know about this and should understand advantages of this strategy. In fact, effectiveness of this campaign will have a great impact on the development of the newly created company. Hence, it should be developed thoroughly. It is possible to involve an agency to make sure that the advertising campaign will be professional and successful.
As has been mentioned above, Kraft Foods Group is an international company which has implemented successful strategies at both business and corporate levels. As for business-level strategies, it is possible to point out that the company tries to meet its customer’s needs. Thus, Kraft Foods Group is constantly expanding its wide range of products. Remarkably, the products have certain regional features to meet expectations of customers in different countries.
The company also launches numerous advertising campaigns to market its products. The ideas of high-quality and sustainability are essential to these campaigns. When it comes to pricing, the corporation also tries to attract more customers by introducing products of different pricing categories (Kraft Foods Inc., 2012).
Notably, Kraft Foods Inc. states that they compete with other companies “primarily on the basis of product quality and innovation, brand recognition and loyalty, service, the ability to identify and satisfy consumer preferences, and price” (Kraft Foods Inc., 2012, p. 5). Admittedly, advertising campaigns focus on customers’ needs in each region.
As far as corporate-level strategies are concerned, the key strategy is diversification and change. The company has been producing new products and expanding to new markets. Notably, expansion is seen as another priority of the corporation. As the company’s history suggests, expansion to new areas began during the first years of the business’ existence. The company is operating in numerous countries worldwide, which enables it to remain competitive.
It is also necessary to add that acquisition of new companies and merging with other businesses is also integrated into the corporation’s strategy. The company sees acquisition as an effective way to expand. Instead of building new capabilities, Kraft Foods Inc. acquires companies with existing capabilities. Importantly, the customers of newly acquired company become new customers of Kraft Foods Inc.
Furthermore, Kraft Foods Inc. invests a lot (more than $190 million) into innovation and research (Kraft Foods Inc., 2012). The company continues developing new products. R&D department comes up with new flavors, colors, packaging materials, marketing strategies and so on. It is necessary to note that the company employs scientists, engineers and other professionals.
Kraft Foods Inc. still patents its products and lots of existing products are protected by copyright law. This helps the company be innovative and offer unique products which differ from the rest in the market. Thus, Kraft Foods Inc. manages to be competitive in the international market.
Sustainability is another key component of the company’s corporate strategy. First of all, Kraft Foods Inc. invests into development of neighborhoods and environment. Of course, Kraft Foods Inc. follows all the necessary environmental requirements in every region it operates in. Finally, the company exploits principles of sustainability when it comes to its relations with its employees. People are seen as major asset of the company and employees have an opportunity to develop through numerous trainings.
When it comes to a small local business, it is necessary to choose the most effective business- and corporate-level strategies. As for the corporate-level strategy, Angus Meats, Inc. should consider utilizing acquisition and merger as a way to expand. This expansion can be aimed at American or even international market.
First, it can be beneficial to merge with another meat producing company in another state. Of course, the expansion should be held steadily. Through a number of acquisitions, it is possible to enter Canadian market and markets in other countries. Admittedly, small business can hardly compete with such international corporations as Tyson Foods or JBS. Therefore, it is important to expand to be able to compete with larger companies.
As for business-level strategy, Angus Meats should consider developing a wide advertising campaign. The high-quality of products is valued by loyal customers of Angus Meats. However, the company sales to hospitality unites, educational and healthcare units, which limit the number of customers as people do not always know what products they are served. However, it is possible to promote the company’s products in a number of ways. Online advertising is a cost-effective way to advertise products.
Products in retail chains can be advertised more effectively as well. Local radio stations can also be regarded as potent tools to make people aware of products of Angus Meats. Thus, word of mouth advertising is an effective way to make people know about a company, but it is not enough in the highly competitive world. Thus, the company can benefit from developing potent advertising campaigns.
Reference List
Angus Meats. (2014). Web.
DePamphilis, D.M. (2013). Mergers, acquisitions, and other restructuring activities: An integrated approach to process, tools, cases, and solutions. San Diego, CA: Academic Press.
Business is an endeavor that works under the philosophy of grow or die. Companies that opt for growth are rewarded with a greater market share than those on the verge of dying. Those that do fail to grow are inclined to fester, and end up losing customers, market share, or demolishing their shareholder value. One of the business strategies that are pivotal in both extremes is acquisitions. They enable strong companies to grow faster than competition and provide entrepreneurs with rewards for their efforts.
They also ensure weaker companies are swallowed more quickly, or, in worst scenarios, rendered irrelevant through exclusion and ongoing share erosion (Hart & Sherman, 2006). This research paper identifies two companies in different industries that are using acquisitions to strengthen their market positions. It examines how these acquisitions enabled the companies to acquire resource strengths and competitive capabilities.
Basically, an acquisition is as a result of one company controlling ownership interest in another organization, a lawful subsidiary of another firm, or some assets of another firm. It may entail the buying of another firm’s resources or stock. The company that is acquired continues to operate as an official owned subsidiary. Within the networking and communication industry, Cisco has perfected the art of acquisitions since its inception in 1984 (Velte & Velte, 2006).
It has refined the use of acquisitions as a strategic business weapon. Where other companies acquire organizations with the ensuing results being stalled growth or further restructuring in a frantic attempt to make the acquisition profitable, Cisco increases the revenue of its acquired companies and fully integrates new employees into its culture. What makes the acquisitions made by Cisco more special than those made by other companies inside or outside the industry?
Cisco was founded in 1984 as a California corporation. It received its first round of venture capital funding in 1987 from Sequoia, $2.5 million. It had ten employees at the time. By the time the company went public at the onset of 1990, it had an initial public offering (IPO) of close to 300 million shares that went out at $18 and closed at $22.50.
Since then, Cisco has grown in leaps and bounds (Velte & Velte, 2006). It began its buying spree with the purchase of Crescendo Communications, Inc. in 1993. This was followed by a series of acquisitions as a way of moving quickly into product areas that customers demanded, but Cisco did not yet supply.
The company began its acquisitions on a slow note but picked up steam so that in 2000 alone, Cisco purchased 22 companies. Between 1993, the firm had finalized 70 acquisitions deals with expenditure on these purchases amounting to $35 billion. Cisco has managed to increase its market share through acquisitions because the firm believes that customers are not just interested in pinpoint products, but end-to-end solutions (Velte & Velte, 2006).
Another company that has been successful in the implementation of acquisition strategies is Procter & Gamble. The company manufactures household products such as pharmaceuticals, cleaning agents, pet supplies and products for personal care (Dayer, Dalzel, & Olegario, 2004). The year 2005 was a milestone for this company following its acquisition of Gillette for $54.91 billion.
This was the largest acquisition in P & G history. It resulted to the creation of the largest consumer product company in the world as P & G is today. Another deal that increased the company’s market share is its acquisition of Iams. The latter is a leading manufacturer of pet foods. The deal, completed in 1999, added to P & G’s 44 consumer brands that today contribute more than $500 million to P & G revenue (Dayer, Dalzel, & Olegario, 2004).
In conclusion, acquisitions are a vital part of any healthy economy and importantly, the primary way that companies are able to produce returns and investors, as well as increasing their market share.
This fact, couple with the potential for large returns, make acquisition a highly attractive strategy for entrepreneurs and owners to capitalize on the value created in a company. Nevertheless, not all acquisitions deals are as clean and safe as it may appear. The process has pitfalls. As such, any party endeavoring to take the risk should be cautious before taking the big leap.
References
Dayer, D., Dalzel, F., & Olegario, R. (2004). Rising tide: lessons from 165 years of brand building at Procter & Gamble. London: Harvard Business Press.
Hart, M. A., & Sherman, A. J. (2006). Mergers & acquisitions from A to Z. New York: AMACOM.
Velte, A. T., & Velte, T. J. (2006). Cisco: a beginner’s guide. New York: McGraw-Hill Professional.
A merger refers to a situation where two or more companies unite to form a single company and this kind of bonding is found among medium sized and small companies. Acquisition occurs when one company is bought by another one. These two aspects are meant to promote growth of the companies involved. This paper addresses the various mergers that took place in United States and their effects.
Let us take a look at the merger that took place in the banking industry in the year 2004 between the Bank of America corp. and FleetBoston Financial corp. In this merger the bank of America corp. acquired the ownership of FleetBoston financial corp. This means that the company that was bought existed under new ownership and as a result its identity was changed to resemble that of the bank of America corp. (Straub, 2007)
A cross check on the history of FleetBoston suggests that the bank had successfully merged with another financial institution known as BankBoston and its previous identity was fleet financial group. The history of FleetBoston indicates that this is not the last merger that’s happening involving FleetBoston.
This shows that the management of this organization is determined and will do anything just to make sure they remain operational with a wider customer base. The bank of America had also entered into a merger which had seen it grow tremendously and since it was ranked third in US it had the required base to buy the FleetBoston bank.
The bank of America also had a failed merger with a stock brokerage institution known as Merrill Lynch in 2008.The merger seemed attractive on paper but on the ground it was very tough.
According to Depamphilis (2008), the bank of America lost many customers after acquiring the ownership of the stocks brokerage firm because the existing customers had personal relationships with the employees of the outgoing owners; people can not trust people who are not known to them. This loss of clients happened because the bank of America could not retain the organization culture of the outgoing Merrill.
Before an acquisition takes place there are a few things that the new owner to be should consider and they are namely (1) asset assessment, (2) historical earnings, (3) future maintainable earnings assessment, (4) comparable company and comparable transactions and (5) discounted cash flow assessment.
These factors are used to determine the cost of acquisition (Depamphilis, 2008). In this case the cost of buying FleetBoston was 47 billion. The above stated factors were important and remain like so because by acquiring the ownership of FleetBoston the bank of America was going to bear all the losses that were being incurred by the bought company and besides it had to take the unknown risks. In the final end the FleetBoston was no more because its shares were now owned by the bank of America.
Straub (2007) argues that there are various reasons for mergers and acquisitions. First, merging companies reduces the cost of operations as opposed to when the companies are being run as independent entities. This results in rise in company proceeds because there are several sellers of goods and services hence the union causes the group of companies to have an upper hand in business.
When a smaller company buys a bigger company it stands to raise its proceeds and also improve its market share. This is because the acquired company could have managed to gather many customers and hence the new owners do not need to look for new customers.
Acquisition promotes cross trading because the incoming company can sell its products and services to the existing customers of the outgoing owners. For instance if a company that deals with insurance brokerage was bought by a company that sells automobiles the customers of the insurance company can buy automobiles from the new owner of the company.
An example in Information Technology industry involves the case of Google when it purchased Like.com in August 2010 for almost $100 million with an aim of improving the IT infrastructure of Boutiques.com. Google integrates managers, websites, employees, network, and data in driving its IS strategy. With its newly implemented e-commerce site, Boutiques.com, Google seeks to widen its market base by offering customers new ways of searching and purchasing clothes and accessories (Efrati & Morrison, 2010).
According to Harwood (2006) companies that make huge proceeds can buy companies that make less or no profits in order to capitalize on their taxation which is normally subsidized. This trend was very common in the US until recently when the government implemented a policy that prohibited large companies from buying companies that are operating at a loss.
Company mergers and acquisitions usually have negative impacts on the management. This is because when a company acquires ownership it lays of some of the employees of the previous owner.
This could affect the performance of the company and thus reduce its productivity because the new management team may not follow the legacy of the previous management team. Since the remaining employees were used to the leadership strategies of the previous managers they would take much time to get used to the new leadership strategies.
When a deal involving a merger and acquisition is being closed the parties have to agree about which brand name should be used. There are several suggested options. First, the weaker brand name can be done away with and it can be replaced by the popular brand. Secondly the parties can do away with their respective brand names and develop a new brand. In some mergers the parties may opt to retain their identities and thus use them simultaneously.
Therefore, instead of relying on creating mergers, companies should find new strategies of penetrating into upcoming markets because success in business comes after a business have held on to its position after others have left. In business world the ups and downs are part of life.
References
Depamphilis, D. (2008). Mergers, Acquisitions, and other Restructuring Activities. New York: Elsevier, Academic Press.
Harwood, I.A. (2006). “Confidentiality constraints within mergers and acquisitions: gaining insights through a ‘bubble’ metaphor”. British Journal of Management 17(4):347-359.
Straub, T. (2007). Reasons for frequent failure in mergers acquisitions: A comprehensive analysis. Wiesbaden: Deutscher Universitasverlag.
This is a company that resulted from the merger between AmBev and Interbrew in 2004. Interbrew was ranked third largest in the entire world in terms of profit margins with most of its sales emerging from North America, as well as, Europe, leading to a total of 120 countries being captured in the marketing strategy.
On the other hand, AmBev was ranked fifth in the global market with most of its sales centered in Latin America. The merger between the two companies was strategic in terms of business development of both companies resulting into a new brand name- InBev.
It should be noted that the mutual intention for both companies was related to gaining of market share value in the respective regions where the counterpart company was strongest, i.e. AmBev’s intention was to gain a foothold in the Northern America and Europe where its brands had not been fully introduced while Interbrew had intentions of fully launching its brands in Latin America.
As a result, it can be noted that the intentions by both companies were strategically business-sensible since they would lead to more sales for both partners due to expansion to foreign untapped markets.
InBev launched its bid to acquire Anheuser-Busch Company in 2008 in a deal that would see the company paying extra, in order to close the deal. InBev placed a bid of $46.4 Billion in order to acquire Anheuser-Busch in a deal that would see the merger of the two companies form the strongest and largest brewer in the world with an estimate of about $36 billion worth of sales annually.
With the Anheuser-Busch rejecting the initial offer of $65 per share by InBev, the CEO of InBev raised the bid to $70 per share, willing to go extra heights in order to close the deal. This represents a major step whose long term corporate strategy would have to produce maximum estimated returns.
Problem Statement
What is the rationale for the deal in which InBev Company is willing to pay up to $70 per share in order to acquire Anheuser-Busch Company?
Analysis of the estimated Value this deal will create for InBev
In order to comprehensively answer the question presented above in the problem statement, it is important to critically evaluate the potential benefits that InBev Company estimates to achieve in acquiring Anheuser-Busch Company that would justify the decision to pay the high premiums. An analysis of this issue will require an in-depth examination of the potential benefits lying ahead after the closure of this deal.
First, InBev is estimating to increase its sales to approximately $36 billion dollars annually. The Budweiser brand from the Anheuser-Busch Company maintains a dominant lead in terms of sales in America, having done well in the market for the last 139 years.
An acquisition of this company by InBev brings forth huge financial benefit since the dominant value of Budweiser in American market will help InBev to achieve its goals in expanding dominance in the American Continent market environment.
According to the CEO of InBev, this deal would create a competitive advantage for the company since the sales are estimated to go higher with annual estimates rising to $36 billion. This would represent excessive sales in the American markets through the sale of Budweiser brand, as well as, benefits of international sales emanating from the sales of brands from InBev Company. As a result, it can be noted that this deal will be a potential benefit for InBev leading to a justification of the high premiums paid for the acquisition procedure.
The creation of the world leading brewer industry is another justification for the acquisition. This acquisition deal will lead to the formation of the world’s largest brewing industry since it will constitute the combination of the world’s fourth largest producer (Anheuser-Busch) and the second largest producer (InBev).
As a result, it can be observed that the acquisition will lead to the formation of a major company that will gain variety of potential benefits in the beer industry. As a matter of fact, InBev is estimated to benefit from the market share in Europe and American continents.
Since Anheuser is majorly dominant within the American continent occupying up to 50% of the market share due to the sale of its brands, the combination of sales from Europe that will emanate from the InBev companies will create a major boost for InBev due to the increased market share.
As a result, InBev is estimated to increase in net profit margins through expansion and increased sales due to variety of beer products from the company. In addition, the highly estimated sales will be helpful in terms of giving InBev absolute opportunity to dominate the beer industry by investing the money into research in the market to find out the existing untapped markets, as well as, the changing tastes of the consumers and customers (Mitchell-Lee and Mirvis 23). As a result, this will create an effective corporate strategy by the company that will lead to more potential benefits of the company.
Third, this deal will ensure that all the US breweries remain open. Due to the threat of global recession, the chance of companies going bankrupt is a likely possibility. Efforts to consolidate unity in the market in such tough financial seasons would be necessary in terms of ensuring that the beer industry stays alive in the global business environment.
It should be noted that the government policies that may be launched by various government s in response to the global financial crisis may be unfavorable to the beer business.
As a result, the decision of InBev to pay high premium in order to acquire Anheuser-Bush, is an effective corporate strategy that will not only strengthen the stakes of the company, but also, help the breweries within the American continent to stay open and operational within the tough financial season in the global environment.
As a result, it should be noted that it was a good corporate strategy for the CEO of InBev to invest in the acquisition of Anheuser-Busch Company at the time.
Creation of large chain of employees and executive managers of both companies is another justification for the high premiums paid by InBev in the acquisition procedure. It should be understood that the acquisition would create a large pool of employees from both companies which would potentially create great manpower resource since highly-skilled employees from one company can be deployed to other non-performing branches of the company to create a turn-around which would be financially useful for the company.
In addition, the inclusion of the board of directors from Anheuser-Busch Company will provide more executive and intellectual management skills that will help InBev to scale higher heights in the global environment in terms of management.
Works Cited
Mirvis, Philip, and Mitchell-Lee, Marks. Joining Forces: Making One Plus One Equal Three in Mergers, Acquisitions, and Alliances. New York: MacMillan Library Reference, 1998. Print.
In the contemporary business world, strategy is of essence when carrying out business activities. The main aims of strategies are to enhance profitability of a company, competitive advantage in the market, market share, and most importantly, to increase shareholders’ fund. There are a number of strategies which can be employed.
Examples are merging with other companies, acquiring other companies, conglomeration, and franchises among others. Besides, there can be strategies that relate product or system overhaul, change in staffing of the company, restructuring of assets, and change in structures of the company (Hitt, Ireland & Hoskisson, 2009). Management of a business should be strategic to ensure that the business attains its strategic goals.
They should respond to various changes in the market. Market is dynamic. Therefore, businesses have to be dynamic. Acquisitions are “takeovers in which the bidder negotiates directly with the target company’s board of directors. The purchase can be based on a consideration of cash, paper, or a combination of the two” (Hitt, Ireland & Hoskisson, 2009).
The fundamental goal in developing an acquisition strategy is the minimization of the time and cost of satisfying needs. This treatise discusses how a company can use acquisition strategy to enhance performance. It will look at two companies in different industries.
Thesis Statement
Acquisition strategy enables companies to strengthen their market position. Further, it enables an entity to increase asset base, enhance competitive advantage, diversify its products, spread operational risks, and explore new markets.
Rio Tinto Group
Rio Tinto Group used acquisition strategy to expand product line and market. Formation of the company was in late 1870’s. The group is the fourth largest mining company in the world. It is listed in both London Stock Exchange and Australian Securities Exchange. Profit for the year 2010 amounted to $15,184 million while the total assets amounted to $112,402 million.
The main business of the group is processing minerals such as copper, coal, aluminium, and borax among others. Since its formation, the company had concentrated on production of copper. The business thrived until the First World War. The World War affected the relationship between the US and Europe.
Therefore, the profitability of the company went down. The management had to come up with strategies of increasing profitability of the group. One strategy was acquisition. In 1930, the group made its first acquisition that was, Rhodesian copper mines.
This acquisition enabled the company to prosper during the world war. After acquisition of Rhodesian copper mines, the group acquired U.S Borax in 1968. Other acquisitions included Kennecott Utah Copper, BP Australian Coal, NSW operations of Coal & Allied Industries (which produces coal), Nerco, Northern Limited, and Cordero Mining Company (the two produces coal).
The latest largest acquisition was Alcan Incorporation. This acquisition amounted to $38.1 billion. Incorporation of Alcan was in Australia. It specialized in production of aluminum. Currently, the group has over 35 subsidiaries located across the world. In addition, there are more takeovers, acquisitions and merger negotiations that are ongoing. After formation, the group produced copper only.
Also, it was serving a small market. Through acquisition, the company has been able to diversify its product. For instance, the acquisition of Alcan enabled the Group to be listed in Australian Securities Exchange. It also enabled the group to expand production of Aluminum. Acquisition of US Borax enabled the group to produce Borax. Finally, acquisition of coal companies helped the group to venture into production of coal.
Secondly, the group has been able to expand the market share. Currently, it has presence in all continents. Further, the asset base and competition edge of the group have enormously improved this is because assets of the acquired businesses are brought into the books of account of the group. Finally, the strategy enabled the group to spread risks that arise from international trade (Hitt, Ireland & Hoskisson, 2009).
In 1930, the group made its first acquisition, that was, Rhodesian copper mines. This acquisition enabled the company to prosper during the world war. After acquisition of Rhodesian copper mines, the group acquired U.S Borax in 1968. Other acquisitions included Kennecott Utah Copper, BP Australian Coal, NSW operations of Coal & Allied Industries (which produces coal), Nerco, Northern Limited, and Cordero Mining Company (the two produces coal).
The latest largest acquisition was Alcan Incorporation. This acquisition amounted to $38.1 billion. Incorporation of Alcan was in Australia. It specialized in production of aluminum. Currently, the group has over 35 subsidiaries located across the world. In addition, there are more takeovers, acquisitions and merger negotiations that are ongoing.
After formation, the group produced copper only. Also, it was serving a small market. Through acquisition, the company has been able to diversify its product. For instance, the acquisition of Alcan enabled the Group to be listed in Australian Securities Exchange. It also enabled the group to expand production of Aluminum. Acquisition of US Borax enabled the group to produce Borax.
Finally, acquisition of coal companies helped the group to venture into production of coal. Secondly, the group has been able to expand the market share. Currently, it has presence in all continents. Further, the asset base and competition edge of the group improved.
This is because assets of the acquired ventures are brought into the books of account of the group. Finally, the strategy enabled the group to spread risks that arise from international trade (Hitt, Ireland & Hoskisson, 2009).
Capital Synergies, Inc.
It is a national insurance brokerage firm specializing in wholesale distribution of various insurance products. Some of the products include traditional and variable life insurance, long term care insurance and annuities. Formation of the company was in 1999. Thereafter, it started an aggressive strategy of acquisition and merger in the life insurance brokerage and distribution channel.
The acquisitions it made included benefit brokerage, Inc., Total Life Concepts, Inc., and Security House, Inc., among others. Use of acquisition strategy led to growth in revenue, reduction in operating expenses, and scale based marketing opportunities (ProQuest LLC, 1999).
Conclusion
From the above comparison of companies in different industries, we can deduce that acquisition strategy enables companies to strengthen their market position. Further, it enables an entity to increase asset base, enhance competitive advantage, diversify its products, spread operational risks, and explore new markets.
Therefore, strategy is necessary for growth and success of the business. Strategies help in improving the profitability of the company and hence the shareholders return. However, a parent company has to be strategic during acquisition. It should consider acquiring companies that would have a long term impact on the company.
References
Hitt, M., Ireland, D., & Hoskisson, R. (2009). Strategic Management: Competitiveness & Globalization, Concepts, USA: Cengage Learning.
From an individual point of view, the largely publicized dispute between People soft and Oracle; companies in the business of developing and installing software for business entities, which took centre stage in 2003 still triggers varied reactions from major players in the enterprise resource planning industry.
A highly emotive debate has been evoked among academic and technical circles to try and put the tale of Oracle’s move to acquire People soft into perspective. Oracle on its part had considered to acquire people soft a year before it came up with the widely disputed antic of taking over the company, a move largely viewed by critics as being malicious and of bad intent.
The board at People soft took a rigid stand against Oracle’s intension to acquire the company it had come up with an insulting and rather unusual bid of $ 16 which represented a mere six percent premium. This preposition was quite unacceptable since the norm in serious bidding activities held the threshold at a whopping twenty percent or more.
The company’s chief executive Craig Conway supposedly sensed bad faith on Oracle’s part which also played a major role in the company’s unanimous decision to reject the deal since it viewed the move as a ploy to prevent them from taking over another major player by the name J.D. Edwards. The move would also destabilize their stake at the stock market.
The bid brought to light by Oracle Company also came out to be a unique one with respect to the fact that it would prevent customers from continuing to seek services from People soft as a result of the fear of what a takeover by another company would imply.
Under these circumstances, if Oracle would have been willing to pay a higher price for the competitor’s shares to induce its shareholders into selling their shares, then the board would have been rendered helpless and unable to stop the former from taking over the company’s ownership.
A litany of scandals also worked against Oracle’s bid to acquire its competitor firm with critics terming the move as having been actuated by malice and being utterly insensitive, allegations which necessitated the management’s introduction of stringent measures to counter. This state of affairs held no grounds to victimize Oracle since not even a saintlier of evidence could be tabled to attest to that fact.
In spite of all the odds that surrounded the Oracle acquisition of People soft, certain measures had been put in place by the board of directors to ensure that in the event of an imminent takeover, a reasonable criteria would be observed to ensure that everybody’s best interests be taken into account.
Among those conditions to be considered included the introduction of a customer assurance plan which would ensure the protection of customer interests so as to build customer confidence. The board also put a lot of emphasis on the acquisition of J.D. Edwards so as to secure the company’s stability.
The rejection of the 16% share bid on the grounds of being too low also came up to be a determining condition for consideration by the board before making the all important decision of selling the company’s shares.
At the inception of People soft, foresight is quite evident since measures were put in place to ensure that in the event of a hostile and non-friendly acquisition of the company, formidable opposition would be rolled out to counter them. Popularly known as the poison pill, it basically stipulated conditions which failure to adhere to would deter one from assuming ownership of the company.
It stipulated conditions which included a minimum share purchase of not less than twenty percent which would increase every time an acquirer increased their net worth above that minimum. The objective of this move was to maintain an acquirer’s stakes at less than twenty percent.
Despite the well placed objective of seeing to it that a rogue takeover would not occur, the poison pill was not a complete barricade that would keep wealthy skimmers at bay since they could still take their time and wedge a proxy battle which would eventually see them install their own board members who would subsequently discard the poison pill.
These concerns hence formed the basis for the protracted court battles between the two companies which resulted in Oracle’s unprecedented increase of their bidding price resoundingly by five times. This move eventually brokered the deal which saw Oracle part with 10.3 billion dollars and eventually putting a stop to the unending court battles.
In conclusion, it is imperative to appreciate the fact that despite Oracle’s intensions which fueled the urge to acquire People soft company which were rather harsh and unethical, what is quite eminent is the fact that a more respectful and liberal approach towards acquiring the company by Oracle would have saved both companies time, money and the agony of going through the tedious court and settlement procedures.
References
Chaturvedi, R. (2005). Oracle’s Acquisition of PeopleSoft. ICFAI center for Management research. European Case Clearing House , Case no.305-169-1.
Madpati, R. (2005). Oracle’s PeopleSoft Bid (Part D). ICFAI Knowledge Center. European Case Clearing House , Case no. 305-072-01.
Watson, R. (2012). Ethics in finance. ethics and conduct of business, sixth edition , 341- 344.
An acquisition is a common phrase which has gained prominence in the contemporary world. It is a corporate system in which a corporation buys the target company’s rights or stakes in view of assuming direct control of the target company. Acquisitions are connected to a firm growth policy where a firm view it has a growth strategy and a convenient method of acquiring a functioning business entity operations instead of embracing its own growth.
Acquisitions can be termed as either aggressive or friendly. An aggressive acquisition happens based on the target corporation decision to be acquired by the target business (Badrtalei & Bates, 2007). Conversely, in a friendly merger, the recipient organization expresses its desire to be acquired. Many authors have discussed reasons which contribute to acquisitions. Hence, this paper seeks to explore reasons behind acquisition failures.
Why do acquisitions fail?
Corporate culture of the acquired organization helps to strengthen the recognition of the new acquisition. However, Hall and Norburn (1987) views that even if the acquisitions seem to have the best strategies in place, for a successful acquisition, cultural differences often contribute to the failure of the acquisition.
Levinson indicates that poor corporate culture often contributes to poor communication and inability to manage cultural differences within the corporation (1970). Cultural differences which cannot be resolved directly affect communications, productivity, decision making and employee turnover at all levels of the corporation.
According to Levinson (1970) many acquisition which take place encompass controlling behavior in managing the new acquisition. The top managers’ attitudes and actions are assimilated by employees, who embrace them in the form of practice (Morley, 2009). Hence, the controlling behavior becomes an issue.
According to Badrtalei and Bates (2007) the controlling behavior makes a commanding organization have equivalent procedures and processes in all aspects of its roles, management and operations, whereas the junior organization must complete the system ego.
Besides, as the controlling company imposes control systems from its fixed bureaucracy, stifling the junior the sheer quality it sought to achieve; thereby becoming obsolete. Similarly, some acquisition, from the onset, impose controls and institute arbitrary changes in sustaining their own ways of doing business, hence, “control” and “controller” fix the problem (Dash, 2010).
The desire for acquisition is drawn from the feeling that unless the organization expands and develops, larger companies will destroy it (Tomberlin & Bird, 2012). Hence, destruction is to be guarded only by being more powerful, and the easiest route is to acquire others. The process sets in motion process of accretion. The process of acquiring by accretion causes an organization to lose flexibility and adds extra load on the organization’s internal systems which include more managerial problems (Hall and Norburn 1987).
Crouch and Wirth notes that when an organization gets old, it forms bureaucracies and becomes fixed in the manner it represents objectives, defines jobs and structures tasks and responsibilities (1991). Hence, the systems of rigidity are used to control the organization leaving less opportunity for individual initiatives and spontaneity to emerge and grow.
In other words, bureaucratizing the systems contributes to fostering known standards and prescribed process of formulating actions. Besides, an organization with an aging workforce becomes trite to versatile changing conditions and less amenable to cope with the environment, hence, fear and obsolescence form psychological traps. Risberg view that fear and obsolescent contribute to impulsive actions, which frame the challenges of an acquisition (1997).
References
Badrtalei, J & Bates, DL 2007, Effects of Organizational Cultures on Mergers and Acquisitions: The Case of DaimlerChrysler. International Journal of Management, Vol. 24, no 2, pp.303 – 317
Crouch, A & Wirth, A 1991, “Managerial Responses to Mergers and Other Job Changes: A Comparative Study”, Journal of Managerial Psychology, Vol. 6, no 2, pp.3 – 8
Dash, AP 2010, Mergers and Acquisitions, I. K. International Pvt Ltd, New Delhi
Hall, PD and Norburn, D 1987, “The Management Factor in Acquisition Performance”, Leadership & Organization Development Journal, Vol. 8, no 3, pp.23 – 30
Levinson, H 1970, A psychologist diagnoses merger failures. Harvard Business Review, pp. 139 -147
Morley, M 2009, The Global Corporate Brand Book, Palgrave Macmillan, New York
Risberg, A 1997, “Ambiguity and communication in cross-cultural acquisitions: towards a conceptual framework”, Leadership & Organization Development Journal, Vol. 18, no 5, pp.257 – 266
Tomberlin, J & Bird, W 2012, Better Together: Making Church Mergers Work, John Wiley & Sons, New Jersey