Merger, Acquisition, and International Strategies
Merger, Acquisition, and International Strategies
1. For the corporation that has acquired another company, merged with another company, or been acquired by another company, evaluate the strategy that led to the merger or acquisition to determine whether or not this merger or acquisition was a wise choice. Justify your opinion.
A merger occurs when one firm assumes all the assets and all the liabilities of another. The acquiring firm retains its identity, while the acquired firm ceases to exist. A majority vote of shareholders is generally required to approve a merger. A merger is just one type of acquisition. One company can acquire another in several other ways, including purchasing some or all of the company’s assets or buying up its outstanding shares of stock.
In general, mergers and other types of acquisitions are performed in the hopes of realizing an economic gain. For such a transaction to be justified, the two firms involved must be worth more together than they were apart. Some of the potential advantages of mergers and acquisitions include achieving economies of scale, combining complementary resources, garnering tax advantages, and eliminating inefficiencies. Other reasons for considering growth through acquisitions include obtaining proprietary rights to products or services, increasing market power by purchasing competitors, shoring up weaknesses in key business areas, penetrating new geographic regions, or providing managers with new opportunities for career growth and advancement. Since mergers and acquisitions are so complex, however, it can be very difficult to evaluate the transaction, define the associated costs and benefits, and handle the resulting tax and legal issues.
In today’s global business environment, companies may have to grow to survive, and one of the best ways to grow is by merging with another company or acquiring other companies. In general, acquisitions can be horizontal, vertical, or conglomerate. A horizontal acquisition takes place between two firms in the same line of business. For example, one tool and die company might purchase another. In contrast, a vertical merger entails expanding forward or backward in the chain of distribution, toward the source of raw materials or toward the ultimate consumer. For example, an auto parts manufacturer might purchase a retail auto parts store. A conglomerate is formed through the combination of unrelated businesses.
Another type of combination of two companies is a consolidation. In a consolidation, an entirely new firm is created, and the two previous entities cease to exist. Consolidated financial statements are prepared under the assumption that two or more corporate entities are in actuality only one. The consolidated statements are prepared by combining the account balances of the individual firms after certain adjusting and eliminating entries are made.
Another way to acquire a firm is to buy the voting stock. This can be done by agreement of management or by tender offer. In a tender offer, the acquiring firm makes the offer to buy stock directly to the shareholders, thereby bypassing management. In contrast to a merger, a stock acquisition requires no stockholder voting. Shareholders wishing to keep their stock can simply do so. Also, a minority of shareholders may hold out in a tender offer.
A bidding firm can also buy another simply by purchasing all its assets. This involves a costly legal transfer of title and must be approved by the shareholders of the selling firm. A takeover is the transfer of control from one group to another. Normally, the acquiring firm (the bidder) makes an offer for the target firm. In a proxy contest, a group of dissident shareholders will seek to obtain enough votes to gain control of the board of directors.
Acquisitions and mergers are supposed to help businesses cut business costs and grow revenue – when they’re executed correctly. That’s what Delta endeavored to do when it acquired Northwest Airlines in 2008. The company was successful in its integration of the varying technological systems that each airline used prior to the merger, according to Delta chief technology officer Theresa Wise. Delta engineers faced the challenge of merging 1,199 computer systems down to roughly 600, and had the added pressure of doing so without passengers noticing that such steps were being taken. Delta posted its highest profit in more than 10 years in 2010; although the company is still faced a multiple challenges there are on the right path.
2. For the corporation that has not been involved in any mergers or acquisitions, identify one (1) company that would be a profitable candidate for the corporation to acquire or merge with and explain why this company would be a profitable target.
As I examine the business world, I think that a company that has not been involved in any mergers or acquisitions would be Rent-A-Center. Rent-A-Center is the largest rent-to-own operator in the United States with an approximate 36% market share based on store count as of December 31, 2012. At December 31, 2012, Rent-A-Center operated approximately 3,094 company-owned stores nationwide, Canada, and in Mexico and Puerto Rico.
The company generally offers high quality durable products such as major consumer electronics, appliances, computers, and furniture and accessories under flexible rental purchase agreements that typically allow the customer to obtain ownership of the merchandise at the conclusion of an agreed-upon rental period. These rental purchase agreements are designed to appeal to a wide variety of customers by allowing them to obtain merchandise that they might otherwise be unable to obtain due to insufficient cash resources or a lack of access to credit. These agreements also cater to customers who only have a temporary need, or who simply desire to rent rather than purchase the merchandise.
According to their website Rent-A-Centre had an annually revenue of 3.083 Billion in 2010 and seems to be on a strong footing. I think that this company will be a great acquisition for companies like Best Buy that are struggling as they will offer an alternative market and direction.
3. For the corporation that operates internationally, briefly evaluate its international business-level strategy and international corporate-level strategy and make recommendations for improvement.
An international strategy is a strategy through which the firm sells its goods or services outside domestic market (Hitt, Ireland, & Hoskisson 2013). As with many other human endeavors, strategy is an important element for success in business. The type of corporate strategy the corporation selects will have an impact on the selection and implementation of the business-level strategy From a company perspective, international expansion provides the opportunity for new sales and profits. In some cases, it may even be the situation that profitability is so poor in the home market that international expansion may be the only opportunity for profits. For example, poor profitability in the Chinese domestic market was one of the reasons that the Chinese consumer electronics company, TCL decided on a strategy of international expansion. It has then pursued this with new overseas offices, new factories and acquisitions to develop its market position in the two main consumer electronics markets, the USA and the European Union.
Corporations employ different types of international strategies to maximize their profits, depending on the countries they are dealing with, the type of industry they are working in, and the consumers that they are selling products and/or services to. A basic international business strategy is the import and export of goods or resources. Companies often acquire economic resources from international countries to take advantage of favorable currency exchange rates and cheaper business input costs. Companies may also use written contracts to secure economic resources at fixed prices for future use.
Exporting goods allows companies to ship economic resources or finished products to international markets for business and consumer use. Exporting goods to international markets often requires companies to have efficient operations for shipping goods to other countries with specific international guidelines. This is the strategy employed by Wal-Mart; they import most of their product from around the world at a very cheap price that enables the company to offer relative cheap prices.
In the context of global business level strategy, home country of operation is the most important source of competitive advantage. Firms must develop and implement appropriate strategies that take the advantage of each distinct country factors as portrayed Porter’s Diamond model. Success in the home country allow firm to pursue strategy into global market. However, as firm continues to grow, the importance of country of origin diminishes (Porter, 1980).
4. For the corporation that does not operate internationally, propose one business-level strategy and one corporate-level strategy that you would suggest the corporation consider. Justify your proposals.
Goodlettsville, Tenn.-based Dollar General Corporation is the nation’s largest small-box discount retailer. Dollar General makes shopping for everyday needs simpler and hassle-free by offering a carefully edited assortment of the most popular brands at very low everyday prices in small, convenient locations. Dollar General ranks among the largest retailers of top-quality brands made by America’s most-trusted manufacturers, such as Procter & Gamble, Kimberly Clark, Unilever, Kellogg’s, General Mills and Nabisco.
The Dollar General core competencies should be focused on satisfying customer needs or preferences in order to achieve above average returns. This is done through Business-level strategies. Business level strategies detail actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product or service markets. Business-level strategy is concerned with a firm’s position in an industry, relative to competitors and to the five forces of competition.
There are four generic strategies that are used to help organizations establish a competitive advantage over industry rivals. Firms may also choose to compete across a broad market or a focused market. Dollar General Corporation strategy is cost leadership – they compete for a wide customer based on price. Price is based on internal efficiency in order to have a margin that will sustain above average returns and cost to the customer so that customers will purchase your product/service. Works well when product/service is standardized can have generic goods that are acceptable to many customers, and can offer the lowest price. A continuous effort to lower costs relative to competitors is necessary in order to successfully be a cost leader. This includes building state of art efficient facilities and maintains a tight control over production and overhead costs.
The overall corporate level strategy is concerned with the broad scope of an organization’s strategic activities and the matching of these to the organization’s environment, its resources capabilities and the values and expectations of its various stakeholders. It looks at the whole strategic scope of the enterprise. This is the “large picture” view of the organization and includes deciding in which service or products markets to compete and in which geographic regions to operate. For multi-business firms, the resource allocation process—how equipment, funds, human resource and other resources are distributed—is typically established at the corporate level.
In addition, because market definition is within the scope of corporate-level strategists, the responsibility for diversification, or the addition of new products or services to the existing product/service line-up, also falls within the realm of corporate-level strategy. Likewise, whether to compete directly with other firms or to selectively establish cooperative relationships—strategic alliances—falls within the realm of corporate-level strategy, while needing ongoing input from business-level managers. Dollar General should pursue a growth corporate strategy so they can expand into international markets such as Mexico and Canada. This strategy is aimed at winning the larger market share, even at the expense of short-term earnings. Four broad growth strategies are diversification, product development, market penetration, and market development.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2013). Strategic management: Concepts and cases: Competiveness and globalization (10th ed.). Mason, OH: South-Western Cengage Learning. Hill, Charles W. L., Jones, Gareth R. (2008). Strategic Management: an integrated approach. Mason, OH: South- Western Cengage Learning. Kerin, R. A., Hartely, S. W., Berkowitz, E. C. & Redelius, W. (2006). Marketing. 8th edition. New York.: McGraw-Hill Companies.
J. Honigmann, Understanding Culture. (New York: Harper & Row, 1963).