Corporate GrowthCorporate Growth

A major acquisition is the fastest A major acquisition is the fastest way to compensate for a way to compensate for a company's failure to grow company's failure to grow organically organically (via internal means)(via internal means)

You don't get a gazelle by breeding You don't get a gazelle by breeding dinosaurs.dinosaurs.– ““When Dinosaurs Mate,” G. Hamel, When Dinosaurs Mate,” G. Hamel, WSJWSJ

Best Path to Growth?Best Path to Growth?FordFord

– JaguarJaguar– MazdaMazda

General MotorsGeneral Motors– SaabSaab

Hewlett-PackardHewlett-Packard– CompaqCompaq

UnileverUnilever– KnorrKnorr– Ben & JerryBen & Jerry

Daimler-BenzDaimler-Benz– ChryslerChrysler

Corporate strategy Corporate strategy solutionssolutions

Starbuck’sStarbuck’sSouthwest AirlinesSouthwest AirlinesToyotaToyotaDellDellWal-MartWal-MartNikeNike Business strategy Business strategy

solutionssolutions

Dell acquired gaming PC maker Alienware to expand position in high-end niche segment (prices start at $5995)

Entering New BusinessesEntering New Businesses WHY?WHY?

– Does business fit?Does business fit?o Financiallyo Strategicallyo Culturally

HOW?HOW?– Acquisition or mergerAcquisition or merger– Internal start-upInternal start-up– Joint venturesJoint ventures– AllianceAlliance

Justifications for M&AJustifications for M&A Attractiveness testAttractiveness test

– Industry factorsIndustry factors– Core competenciesCore competencies– Strategic positionStrategic position

Cost of entry testCost of entry test– Buy outstanding sharesBuy outstanding shares– CashCash– Contributions to merger or JVContributions to merger or JV

Better off testBetter off test– Synergies, econ. of scale/scopeSynergies, econ. of scale/scope– Consolidation of resources, activities Consolidation of resources, activities – Leverage strategic assets for Leverage strategic assets for competitive competitive

advantageadvantage??

Blue CircleBlue CircleUnrelated Diversified FirmUnrelated Diversified Firm

HQ

CementCementProducts

Bricks GasStoves

LawnMowers

Unrelated to Other Units Unrelated to Other Units or or

Core CompetenceCore Competence

OKOK

BoddingtonsBoddingtonsRelated Horizontal Diversified FirmRelated Horizontal Diversified Firm

HQ

Pubs

RestaurantsHotels Health

ClubsNursingHomes

Related to Other Units Related to Other Units viavia

Core CompetenceCore Competence

Adidas-Reebok MergerAdidas-Reebok Merger

+vs.

++EmployeesEmployees 26,10026,100 24,60024,600U.S. Market U.S. Market

ShareShare 21.1%21.1% 36.3%36.3%Global Global Market Market ShareShare

25.0%25.0% 33.2%33.2%

Net IncomeNet Income $517.9 mil$517.9 mil $1.2 bil$1.2 bil

Hot ProductHot Product SmartShoe SmartShoe + Nelly’s shoe line+ Nelly’s shoe line

L. Armstrong L. Armstrong apparelapparel

+ iPod Sport Kit+ iPod Sport Kit

Adidas-Reebok MergerAdidas-Reebok Merger

Adidas-ReebokAdidas-Reebok Why?Why? Better off?Better off?

Adidas-Reebok MergerAdidas-Reebok Merger

+vs.

Gillette

Personal Grooming

SmallAppliances

Oral Care

PortablePower

Gillette

Personal Grooming

SmallAppliances

Oral Care

PortablePower

PEST PEST PEST PEST

Gillette

Personal Grooming

SmallAppliances

Oral Care

PortablePower

Value Chain AnalysisValue Chain AnalysisGillette’s acquisition of Duracell allows it to Gillette’s acquisition of Duracell allows it to leverage the following strategic assets across leverage the following strategic assets across business units (synergies)business units (synergies)

PROCTER & GAMBLE

Soaps Food Beverages PaperProducts

Gillette

RazorsCore Product

Mr. CoffeeMachines

DuracellBatteries

Oral-BToothbrush

M&A ExerciseM&A Exercise

Nokia

Nextel

Sony-Ericsson

Netscape

Red HatMotorola

AMDCircuit City

Nokia should acquire _________________Nokia should acquire _________________

Apple

XM-Sirius RadioBlackberry Palm

Other?Other?

Attractiveness TestAttractiveness Test Why is the _________ industry attractive to Why is the _________ industry attractive to Nokia?Nokia?

1.1.

2.2.

3.3.

4.4.

5.5.

Cost of Entry TestCost of Entry TestCan Nokia afford to acquire ___________?Can Nokia afford to acquire ___________?

Yes No

Better-off Test Better-off Test (1)(1)The acquisition of _____ gives it the following position in The acquisition of _____ gives it the following position in strategic space in the _____ industrystrategic space in the _____ industry

Dimension 1

Dimension 2

Nokia

Cell Phones

Better-off Test Better-off Test (2)(2)Nokia’s acquisition of ______ allows it to leverage the Nokia’s acquisition of ______ allows it to leverage the following strategic assets across business units following strategic assets across business units (synergies)(synergies)

Better-off Test Better-off Test (3)(3)Nokia’s acquisition of ________ gives it the following Nokia’s acquisition of ________ gives it the following business unit portfoliobusiness unit portfolio

Long-termIndustry

Attractiveness

Competitive Advantage

High

Med

Low

Strong Avg. Weak

Mobile Phones