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CS2 – Corporate Transactions, G5 (林奧都 - Aldo, 廖莉琪 - Angela, 陳威霖 - Willie,…
CS2 – Corporate Transactions
M&As Part 1
Why companies do M&As
bad reasons
good for managers (principal-agent-problems
not necessarily for the company, only for their own personal interest.
increase diversification
reduce the overall risk for their company
good reasons
superior acquisitions&integration capability
overcome competitive disadvantages
to get into new markets or to get acess to new technology
Why don't companies just find good targets?
you can't predict after adjusting for the risk-weighted cost of capital
worth less in the future
worth more in the future
Definition
Mergers
friendly approach
combining two similar size companies
Acquisitions
friendly approach
Amazon & Whole Foods
unfriendly hostile takeover
Broadcom & Qualcomm
purchase or takeover
Are M&As value-creating?
acquirers need to pay a premium over the target's market value
impacts on acquirer's stock value
short-run
neutral
on average
long-run
significant delines
M&As Part 2
How companies create value in mergers?
synergies
why?
stretching strategy
by helping the acquirer develop new capabilities
leveraging strategy
by applying the acquirer's capabilities to the target's business
advantage from combining two businesses
Unique case of private equity
Private Equity
has become a very large industry
buy target companies
increase their value by improving how they're managed
also by taking a lot of debt to maximize the returns for their equity investors
relevant to synergies in M&As
Post merger challenges
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
what are the opportunities for improvement here?
go beyond sort of the pitch from the company
dive deep into the work and into the business
it is not uncommon for mergers to fail
post-merger integration is difficult
poorly prepared for
poorly executed
Strategic alliances and a portfolio view
A Portofolio View
Variety of Corporate Transactions
Important to consider interdependencies
Company's portofolio of transaction could become the grand scheme to continue modify and re-deploy corporate's resource base
Companies usually engaged in multiple corporate transaction
Intertemporal Effects
Learning and capability augmentation over time through corporate transactions
A company could begin with one M&A or Alliance and becomes the basis for capability building
Then sees another opportunity to add with another acquisition
Creating and freeing up re-deployable resources
Inter-unit resource re-deployment (redeploying employees after acquiring)
Example
Google first raids into cell phone industry
After acquiring Android they also moved the key employees to Google
Form lots of alliances to commercialize Android and for Google to manufacture its own phone
Use lower commitment transactions such strategic alliances (as stepping stones to more permanent arrangements like acquisition)
Developing corporate transaction capabilities
Contemporaneous Effects
Resource re-deployment opportunities
by acquiring firms and alliances there are opportunities to synergies and learn
Inter-organizational networks that companies could build through alliances
these networks could be helpful in searching for information for increasing innovation and profit
making alliances work
Structuring Alliance
Negotiate contractual terms
Both sides must meet the terms even if have to use the court to ensure it
To achieve specific goals
Negotiate general conditions
To ensure that the other side will behave accordingly
Self-enforcing contract or credible commitments
Taking "hostages" to make both parties behave honorably
Managing Alliances
Build and reinforce trust
Learn from partner
Adapt structure and management over time
must exit if alliance can no longer be adapted
Partner selection
partnerships help all participants advance their strategic goals
contribute valuable assets to the alliance
accept a fair distribution of benefits
Ways to manage risk, opportunism, and
conflict that could arise in alliance
Walling off key technology
to prevent leakage of technology
Contractual safeguards
seeking credible commitments
Agreements and governance
Problems with strategic alliances
competitors gain access to capability, technology, markets
conflict, opportunism, disputes
adverse selection problems
partner
contributions
managing joint investments, risks, responses
corporate strategy
corporate transactions involve actions with other entities that change or manage the scope of the firm
Divestitures
carve-out
spin-out
sales
Alliances & Contracts
Mergers & Acquisition (M&A)
companies can grow new business organically from within
corporate transactions provide an alternative less incremental approach to changing scope
another firms
not unilateral
M&As Part 3
acquisition may increase market power
increase revenues
may overcome entry barriers
what are some of the problems
different culture
a lot of the people from the acquired company leave the organization
inadequate evaluation of the target
asymmetric information problems
synergies don't materialize
summarize
something that was really far from home in terms of our core capability
technically far from home
geographically far from home
Divestitures
Transactions that break up and separate a business unit from a company(Not selling assets of a business).
Divestiture Modes
Spin off
Separation of a business unit from a parent company and its shares are distributed to the parent's shareholders.
be used for larger units
No cash received.
Unit sale
Sale of a business unit to another firm, including private equity firms.
Fastest to execute
be used for smaller units
Has some cash received.
Split off
Similar to spin off; except parent's shareholders may exchange parent's shares for that of the unit.
Carve out
Partial sale of a business unit's shares to investors(parent typically retains control)
Slowest to execute
Has some cash received.
G5
林奧都 - Aldo
廖莉琪 - Angela
陳威霖 - Willie
劉津綝 - Alice
甄㛩媄 - Yvonne
林美娜 - Hana
黃子芸 - Delia