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[CS-2] Corporate Transactions, Group2 Team members, All of these things…
[CS-2] Corporate Transactions
Disney case
Disney animated movie economics
Its iconic hand-drawn animation characters and their stories
These animated characters are amazingly profitable, because Disney can own the characters fully and don't have to pay
Animation also makes a lot of money outside the initial release
Disney has been well positioned to orchestrate this enterprise across multiple channels and overtime
Disney's corporate strategy (1950s)
Walt had a clear sense of Disney's corporate strategy
Walt Disney hand drawn the diagram show how the talent or the studio was the center of the entire company
Disney have TV and music and comic strips and even merchandising,and that other experience that Disney pioneered,theme parks,starting with Disneyland in Southern California
Disney's corporate strategy (1960s)
Walt added resorts and opened Disney World in Florida
Disney was still essentially monetizing its core animation characters and stories across all these different businesses
Disney's failure
Walt Disney died in late 1966 and Roy Disney in 1971, the company meandered and went into a prolonged slump, unable to really find its way or develop new exciting movies
Disney Renaissance
Michael Eisner and Jeffrey Katzenberg
Made a number of memorable movies like The Little Mermaid, Beauty and the Beast, Aladdin, and the Lion King
Lion King represented a high watermark for Disney
A big blow to Disney
Katzenberg left Disney in 1994 to start DreamWorks, of Shrek and Donkey Fame
Disney Solution
Disney was still making animated movies with artists and painstaking hand-drawn characters
movie making universe
Movie making universe
It used computing technology to artificially create and render things on screen
This new wave of computer-generated or CG movie-making
Pixar
The company got spun off Lucasfilm
Revolutionising the making of animated movies, combining high tech advances with compelling storytelling and on-screen artistry
First big hit
Toy Story
Relating to John Lasseter's own experiences with toys as a kid
Formed a close alliance with Disney
Distributed Disney movies,Disney allowed Pixar to sell DVDs, syndicate TV sales, merchandise products, and all the rest
Disney predicament
Renaissance faded into the 2000s and movie hits were hard and harder to come by
Tried to use CG technology to upgrade its own animation, but it wasn't especially successful
Increasingly, most of Disney's hits were actually Pixar movies
Pixar began to demand and get a higher share of the profits from Disney for its movies and it's characters
Disney' coping style
Bought out Marvel Studios in 2009
In 2012 Disney even bought Lucasfilm and it's Star Wars franchise
Bought out Pixar in 2006
Disney case highlights a classic dilemma for many successful companies when they find themselves falling behind in a new technology or capability
Mergers & Acquisitions part2
private equity firm
increase the value of the target company they have bought
sale them to another company or through IPO
how they doing combination
they could identify targets that might be undervalued by the market
a thesis about how the target firms value can be improved
by bring in better management
post-merger
they must have the ability to integrate two company and realize the synergies that were presumed to exist
to avoid a deal making mentality and not focus simply on buying the other company
evaluating the target
ensuring the synergies are there
planning for post-merger integration
executing the plan
synergies
stretching strategy
helping the acquirer develop new capabilities
technologies
particular skill set
new products
leveraging strategy
applying the acquirer's capabilities to the target's business
Mergers & Acquisitions part3
three-part text
Whether the potential synergy can be at least partly captured
price
must have a strong, credible post-merger plan for realizing the synergies
Does the M&A has the potential for creating synergies
successful M&As
objective evaluation and bidding
have some financial slack
clear identification and quantification
a good implementation plan
Acquisition
reasons for acquisitions
increased speed to market
cost of new product development
lower risk compared to developing new products
increased diversification
overcome entry barriers
avoid excessive competition
increased market power
problems in achieving success
inability to achieve synergy
too much diversification
larger or extraordinary debt
avoid excessive competition
inadequate evaluation of target
bureaucratic cost becoming too large
integration difficulties
A Portfolio View
Corporate Transactions
Common for companies
Modify & deploy the company resource base
Consider interdependencies
Intertemporal effects
Redeploy resources & focus on other businesses
Acqui-hiring
Inter-unit resources re-deployment
Learning & capability augmentation
Real options for future transactions
Making a small equity investment :arrow_right: Obtain the option
Corporate transaction capability
Contemporaneous effects
Complementarities or synergies OR resource re-deployment opportunities
Company acquire a number of targets in the same industry, and then seek to combine them to exploit scale and leverage synergies
Conclusion
M&As, Divestitures, and Strategic Alliances
M&As often destroy value
Divestitures and alliances create value if managed well
The spectrum of organization modes
Strategic Alliances
Method
Relational contract
long-term contract for services or products from another company
Equity Alliance
at least one firm invests in the other
Licensing
contractual arrangement for access to technology, typically in exchange for royalties
Joint Venture
establishes a new separate legal entity
that firms co-invest in
Advantage
Reducing asset commitment and increasing flexibility.
Learning from partner; upgrading own resources.
Accessing capabilities or markets more quickly and surely.
Sharing costs, risks, and also the rewards.
Building cooperation around a common standard.
Problems
Common issues of market governance: conflict, opportunism,and disputes.
Adverse selection problems (partner, contributions)
Coordination issues: When managing joint investments, risks,and responses, partners may not have the same views on these actions and they may not trust each other.
Moral hazard (monitoring)
Competitors gain access to capability, technology, and markets.(learning races)
Hold-up (renegotiation)
Three key elements
Alliance Structure
Credible commitments
Contractual terms
Managing Alliances
Relational governance
Build and reinforce trust
Learn from your partner
Adapt structure and management over time
Partner Selection
Good partnerships
advance their strategic goals
contribute valuable assets and have complementary assets (create value)
seek different benefits (reduce conflict)
and have a fair distribution of benefits
Full Integration
Full Integration
Brett Conradt Interview
What steps or what things should managers be thinking about to do when they're thinking about a target to acquire?
Investment bank represent the company for sale
Private equity fund that's making the investment
Market growth
Competitive positioning
Market size
Different growth opportunities
Private equity fund is taking pension funds and putting it to work
Insurance companies growth impacts faculty and features and people outside of the business world
Make sure
What are the size of those opportunities versus?
Are these just hypothetical or theoretical growth opportunities?
Are those true opportunities?
So as you're digging through those objectives and thinking through things, other things may pop out
Important
An independent view
Remain prudent in approach
Look at the facts and to think about it objectively
Bad news to report
Remaining calm & independent
Make sure that all checks out
Present in a way that is digestible to everybody involved
Divestitures
Why
Get rid of low profitability units
If the synergies are low
In order to raise cash
To free up and redeploy their resources and capabilities elsewhere
To create room for new businesses
Free up the entrepreneurial or innovative potential within a unit
How
Pay attention to the post divestiture governance of the divested unit
If your goal is to encourage autonomy and enterprise
Managers need to be clear about the goals of any divestiture
Is the goal to raise some cash for the parent?
Is it about the fit with the other businesses and the strategy of the company?
What is your thesis about why it will create value?
Should be open to divesting their units
Needs to be learned to be open to the possibility to constantly evaluate potential units for divestment
What
The business unit is maintained more or less and simply its ownership is changed
Include
Split-off
The parent shareholders are given the option to exchange their shares for that of the unit
Carve-out
The parent sells part of its ownership in a unit for cash
Result in some cash proceeds to the parent firm
The one case that don't result in the parent transferring the entire ownership of the unit
Spin-off
The business unit is separated completely from the parent company and its shares are distributed to the parent shareholders
Unit sales
The business unit is simply sold to another firm, usually for a cash compensation
small-sized and high-speed
the most common divestiture mode used
Different from simply closing a business unit and reselling or reusing assets
Introduction
corporate strategy
the pursuit of competitive advantage
Mergers & Acquisitions part1
distinction
acquisitions
outright purchases or takeovers
friendly or unfriendly
unfriendly hostile takeover
e.g. Broadcom&Qualcomm
mergers
friendly approach to the transaction
e.g. Amazon&Whole Foods
combining two companies
called mergers and acquisitions /M&As
the boundary are fuzzy
mergers
tax reasons
acquisitions
intents and purposes
value-creating?
acquire
target
acquirers need to pay a premium over the target's market value
impact on acquirer's stock price
short term
negative
neutral
positive
long term
significant declines
do M&As
good reasons
new markets, technology or capability
to address competitive disadvantage
well honed acquisition and integration capability
bad reasons
principal agent problem
managerial hubris
Jamie Cleghorn Interview
Framework
The elements of value
It's an exciting piece of IT
The fundamental thesis is that companies exist to create customer value full stop
Discover
30 elements of value, 30 Legos in any consumer value proposition that are the building blocks of that value proposition
Develop
a metadata analysis tool
Thousands of consumer research studies that we've done
Thousands of diligences of B2B companies through private equity and really asking the same question over and over and over to consumers to B2B customers
What are the things that make you a happy customer of this company?
It gives people a sort of a framework to think about it and make it useful
Putting the strategy wrapped around a customer value proposition is the most enduring way to create a winning strategy
It's a systematic way to think about where value might come from in different context
It might not be completely comprehensive, but it captures a lot of the different dimensions that you have
An example of to how specifically to use?
Creating a next-generation value proposition, next generation offering, the historic method to do it was come up with lots of ideas
We think about next-generation digital offerings or the amalgam of all sorts of technologies into old school offerings
This idea of selling value-based selling, consultative selling
It creates vocabulary for the sales people to not only have that conversation then put some quantification around it for customers
Conjoint analysis, and discrete choice analysis and all those things that have really fueled so much market research over the last 20-30 years in academy or in the business world.
How leaders can overcome with those practice?
If you can make individual people successful to change at a certain point, the critical mass hits and companies themselves actually change
Creating a preferred future for people that people can get excited about
Accessible to all types of learners
Various ways of communicating the same message
some of the challenges of post-merger integration and how one can address them?
The best mergers are done with a very clear thesis of where the value is going to come from that can be written down
80% of the value is going to come from a handful of things and so really focusing on those getting those right
if people bring acquisition ideas know ultimately they're going to be responsible for delivering those business results. You get better acquisition ideas and you get better execution on the backend of those deals
Group2
Team members
阮皓瑄 Nancy
陳睿瑩 Irene
Leader/陳仟容 Karen
周芷萱 Susan
李咨頤 Dorothy
楊怡雯 Wendy
廖柔嘉 Judy
All of these things were fed by the character's stories and movies that the studio's talent created
These were what kept Disney profitable in the 2000s