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SMMCG8[CS-2]LN9&LN12, example: ITT, eg., eg., eg., be blocked by the…

- - - - Merger
        
        combining two companies
        
        similar size
        
        friendly approach
      - Acquisition
        
        purchase or takeover
        
        friendly or unfriendly
        
        hostile takeover
      - fuzzy
    - - For acquirers
        
        need to pay a premium over the target's market value
      - Research indicates...
        
        in short-term
        
        sometimes in positive,sometimes in negative, on average, neutral
        
        in long -term
        
        significant decline(on average)
        
        M&A actually end up destroying value.
    - - good reason
        
        access new markets,technilogies,etc
        
        eg.
        
        Salesforce's acquisition of Tableau
        
        they paid very significant premium
        
        For Tableau's data analytics and visualization technologies and products
        
        eg.
        
        Cisco
        
        good at identifying targets
        
        buying companis at a relatively low premium,
        
        integrating them and creating value from them
        
        eg.
        
        Salesforce v.s. Microsoft
        
        1 more item...
        
        superior acquisition & integration capabilities
        
        overcome competitive disavanyages
      - bad reason
        
        principal agent problem
        
        for manager's own personal interest to protect them
        
        reduce the overall risk for the company
        
        increase diversification
        
        managerial hubris
    - - efficient market wall
        
        the stock market value of accompany reflects its fair price at any point in time
      - winner's curse
        
        the winner in an auction is biggest error in overvaluing the target, they need to pay too much.
        
        solution
        
        absolute secrecy
        
        to avoid other companies getting wind of the merger and jumping into the bidding frame
        
        eg.
        
        Amazon Whole Foods merger
        
        Salesforce Tableau acquisition
  - - - Definition
        
        combination of the two companies, specifically the combination of their capabilities
        
        create more value than the sum of them acting alone
      - Two compelling argument
        
        helping the acquirer develop new capabilities
        
        stretching strategy
        
        target brings in new products, or technologies, or even talent with a particular skill set
        
        Ex. Tableau
        
        helps to add complementary capabilities, products, and technologies to Salesforce's portfolio
        
        create more value by applying the acquirer's capabilities to the target's business
        
        leveraging strategy
        
        Ex. Amozon purchase of Whole Foods
        
        considerable online capabilities to create more value
      - How to create value
        
        identify targets that might be undervalued by the market for one reason or another.
        
        have a thesis about how the target firm's value can be improved
        
        bring in better management
        
        identified within the target
      - Difficulties
        
        post-merger challenges
        
        inability to actually integrate the two companies and realize the synergies that were presumed to exist
        
        Interview
        
        pitfalls that inexperienced managers might get wrong
        
        just taking things at face value
        
        highlight the good things about the business and maybe not so much the things that need work
        
        stopping at the easy answer or not getting a number of different opinions in the work
        
        in transactions have to think about the parties that are involved
        
        how we're going to create value from the acquisition
        
        scrutinize everythings
        
        If it true opportunities
        
        what are the size of those opportunities versus
        
        are these just sort of hypothetical or theoretical growth opportunities
      - Conclusion
        
        not uncommon for mergers to fail
        
        The operational and organizational integration difficulties are certainly very substantial
        
        the most important thing here is to avoid a deal making mentality and not focus on simply buying the other company
        
        Focus on
        
        evaluating the target
        
        ensuring the synergies are there
        
        planning for post-merger integration
        
        faithfully executing the integration plans
  - - - Increase market power
        
        increase revenues
      - Overcome entry barriers
      - Increase speed to market
        
        bring in revenue sooner
      - Lower the cost of new product development
      - Lower risk compared to developing the new products yourself
      - Increased diversification
        
        increase revenue
        
        reduce risk
        
        reduce costs
    - - Different culture
      - People from the acquired company leave the organization
        
        feel disadvantage
        
        be very carefully orchestrated
      - Inadequate evaluation
        
        pay too much for the company
      - Higher debt ratio
      - Synergies don't materialize
        
        increase costs
      - Diversifying too fast
        
        profitability starts to go down
      - Too much attention is on the next deal rather than managing what you have
      - Bureaucratic cost
        
        increase costs
    - - The combined businesses have the potential for valuable synergies
      - The value is not dissipated by the cost of acquisition
      - There is a strong, credible, post-merger plan for realizing the synergies
- - - - Definition
        
        the pursuit of competitive advantage to the configuration and coordination of a company's multi-business activities
        
        Transactions
        
        change the set of businesses
  - - - Merges and acquisitions
      - Divestitures
      - Strategic alliances
  - - - E.g.
        
        companies grow new businesses
        
        within or exit businesses by redeploying the assets and resources from that business
  - - - provides analysis and research
    - - M&A trends and graphs
- - - - the elements of value
        
        companies exist to create customer value full stop
        
        companies wouldn't exist without customers
        
        value or a value proposition is not the sort of amorphous thing
        
        discrete and measurable
      - how specifically to use
        
        creating
        
        next-generation value proposition
        
        next generation product
        
        We think about next-generation digital offerings or the amalgam of all sorts of technologies into old school offerings.
        
        innovation
    - - You have to one by one get every person that company to want to change.
        
        managing on that individual level
        
        saying casting a vision for each person
      - Giving them the time and space to internalize why they should change and then start to practice how to change.
      - If people success to change, the company will also change.
      - two things need to focus on
        
        creating that vision of we call it the beach or that point of arrival, creating a preferred future for people that people can get excited about.
        
        communicating in a way that's accessible to all types of learners.
    - - key issue is focus
        
        The best mergers are done with a very clear thesis of where the value is going to come from.
      - the reality is that 80% of the value is going to come from a handful of things and so really focusing on those getting those right.
      - M&A itself is a skill and the people that get the most value from M&A have a track record.
  - - - financial
      - environmental
      - legal
        
        two standpoints
        
        investment bank
        
        private equity fund that's making the investment.
        
        hypothetical or theoretical growth opportunities
        
        representing the company for sale
        
        be the management team from the company
        
        insurance bank
        
        macro view
        
        where the capital is coming from
        
        pension funds
- - - - upgrade its own resources
        
        cause negative efect
        
        learning from and taking advantage of companies
  - - - the core of the alliance
        
        AI
        
        5G
        
        cloud
      - Microsoft and AT&T co-own Cloud platform
        
        AT&T put a lot of its network functions on the Cloud
        
        use and develop various AI technologies
      - AT&T is rolling 5G network
        
        help Microsoft create solutions by 5G
  - - - create a separate third firm
        
        alliance partner co-own and contribute resource
      - example
        
        biotechnology companies from alliances with pharmaceutical companies
        
        pharmaceutical companies
        
        get new technologies and innovation
        
        biotechnology companies
        
        helping testing
        
        marketing their final products
  - - - good partners
        
        advance the strategic goal of both parties
        
        create value and contribute
        
        seek benefits that are different from the other party
    - - negotiate legal contractual terms
      - equity stake
    - - set up good relational governance
- - - - business asset is maintained more or less
      - ownership is changed
  - - - separation of a business unit from a parent company
      - shares are distributed to the parent shareholders
      - Split-off
        
        similar as spin-off
        
        instead of distributing the shares, the parent shareholders may exchange their shares for that of the unit
      - used for the largest units
      - create the most value
        
        represent the largest transactions
    - - the parent sells part of its ownership in a unit for cash
      - IPO involved
        
        the slowest to execute
      - the parent retains more than 50 percent ownership
        
        still have effective control
      - don't result in the parent transferring the entire ownership of the unit
        
        only involves the sale of 25 percent of equity
    - - the business unit is simply sold to another firm
        
        for a cash compensation
      - the fastest to execute
      - used for smaller units
        
        the most common divestiture mode used
  - - - Carve-out
        
        yield some cash to the parent
      - Unit sales
        
        Financially distressed firms get the biggest stock market bump
        
        give 100 percent cash for the unit that's being divested
    - - focus their attention in corporate resources
    - - focus on its core businesses
    - - To create room for these new businesses
  - - - the way in which we interact with computing devices by using a mouse or a touchscreen
        
        combine the GUI with the mouse to create the Alto in 1973
    - - Xerox never successfully commercialized most of these innovations
  - - - to be entrepreneurial and innovative
        
        divestitures can provide a boost to the units innovation
  - - - constantly evaluate potential units for divestment
    - - find its own identity and to define its own culture
      - to set itself apart from the parent after the divestiture
- - - - Complementarities or synergies OR resource re-deployment opportunities
        
        e.g.
        
        between M&As
        
        alliance + M&As
      - inter-organizational networks
        
        aggregating
        
        valuable information
        
        industry :arrow_right: company
        
        funneling
    - - Indicates interdependencies over time
        
        Inter-unit resource re-deployment
        
        e.g.
        
        Google
        
        Real option for future transaction
        
        Creating & freeing-up redeployable resources
        
        Learning and capability augmentation
        
        Corporate transaction capability
  - - - Divestitures
        
        opposite phenomena of M&As
      - Strategic alliances
        
        hybrid middle option
        
        create value if managed well
      - Mergers and Acquisitions
        
        destroy value
        
        three-part test
        
        value-creating M&As
        
        a portfolio view of corporate transactions
- - - - chose to spun-out these two companies