week 16

Week 16 (11/17/2013)

1.   In your own words and using referenced quotes describe the difference between organic growth, merger & acquisition and strategic alliance.

Organic growth:

The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic. (www.investopedia.com)

Merger and Acquisition:

Mergers and acquisitions (M&A) is the area of corporate finances, management and strategy dealing with purchasing and/or joining with other companies. In a merger, two organizations join forces to become a new business, usually with a new name. Because the companies involved are typically of similar size and stature, the term "merger of equals" is sometimes used.

In an acquisition, on the other hand, one business buys a second and generally smaller company which may be absorbed into the parent organization or run as a subsidiary. A company under consideration by another organization for a merger or acquisition is sometimes referred to as the target. (whatis.techtarget.com)

Strategic Alliance:

Agreement for cooperation among two or more independent firms to work together toward common objectives. Unlike in a joint venture, firms in a strategic alliance do not form a new entity to further their aims but collaborate while remaining apart and distinct. (www.businessdictionary.com)

    2.      Give an example of a company that has grown through a) organic growth, b) merger or acquisition and c) strategic alliance

Organic Growth:

This BBC news article flags up that Jury’s has secured additional finance to support their expansion programme. These are challenging times for the UK hotel industry as recession has affected room occupancy rates from business and household customers. But Jury’s Inn has instigated an ambitious programme of new hotels - a strategy of internal or organic growth. urys said it would look at new developments in key markets such as London. It has already opened five new hotels across the UK this year.

New hotels have opened in Sheffield, Watford, Exeter, Swindon and Derby. Another hotel is due to open in Aberdeen later this year, with more to follow next year in Portsmouth, Glasgow, Newcastle and Bradford. A new hotel in Prague is due to open in September 2009. Jury’s Inn has traditionally placed itself in the affordable business hotel market segment (www.tutor2u.net)

Merger and acquisition:

Sprint and Nextel Communications
In August 2005, Sprint acquired a majority stake in Nextel Communications in a $35 billion stock purchase. The two combined to become the third largest telecommunications provider, behind AT&T (NYSE:T) and Verizon (NYSE:VZ). Prior to the merger, Sprint catered to the traditional consumer market, providing long-distance and local phone connections and wireless offerings. Nextel had a strong following from businesses, infrastructure employees and the transportation and logistics markets, primarily due to the press-and-talk features of its phones. By gaining access to each other's customer bases, both companies hoped to grow by cross-selling their product and service offerings

Strategic Alliance:

Many mobile brands including Samsung have created a strategic alliance with Google for the purpose of android operating system.

    3.      Briefly discuss the merger between Britvic and AG Barr. What advice would you give to the new Board?

The combination of these two companies explains that they went for the process of merger as the management from both companies will be there for future operation. This process of merger and acquisition is very profitable for the both company as they will save 35 million pound yearly and will generate 23 percent of combined operating profit.

Some advices to the new board are:

§  They should bring new sovereign brand in the market.

§  They should come up with planned, creative way of endorsing product.

§  They should maintain the effective and prompt communication with board members.

§  They should give extensive importance on research and development.

Case study

1) Evaluate the case for the merger

                         I.            What are the positives and benefits? What should work well?

Some positives and benefits of mergers are:

§  Annual cost savings of £35 million

§  Operating profit of 23 percent

§  Relationship with Pepsi

§  Chance to sell drinks to Britvic's customers

§  After valuation Britvic's share price might increase

With formation of new company they can emerge as a new competitor to other soft drink producing companies.

                        II.        What are the negatives and potential risks? What problems might occur?

·                     Barr and Britvic have their own management styles and corporate culture that have been in practice for years. Merging these firms also means merging their cultures, values and way or working which may result to some sort of conflicts in the future. In addition to this, Britvic having the debt of £600 million may not be preferred by the executives and top management of Barr to take any kind of the strategic decision on their own without the evaluation and approval of Barr. This too may cause some sort of management problem and conflicts regarding the decision making authority.

·                     The shareholders of Barr who were earning high return on investments may not be earning the same amount after merging which may lead to their dissatisfaction. 

·                     The downsizing of the companies in terms of employees is another negative aspect of the merge of these companies because though having lesser number of employees may be beneficial to the company, settling down the issues related to the employees who will be fired can be very costly in terms of both monetary aspects and the company image.

III.    What advice would you give the newly formed Board?

Some advices to the new board are:

§  They should bring new sovereign brand in the market.

§  They should come up with planned, creative way of endorsing product.

§  They should maintain the effective and prompt communication with board members.

§  They should give extensive importance on research and development.

References:

(n.d.). Retrieved from www.investopedia.com: http://www.investopedia.com/terms/o/organicgrowth.asp

(n.d.). Retrieved from whatis.techtarget.com: http://whatis.techtarget.com/definition/mergers-and-acquisitions-MA

(n.d.). Retrieved from www.businessdictionary.com: http://www.businessdictionary.com/definition/strategic-alliance.html

(n.d.). Retrieved from www.tutor2u.net: http://www.tutor2u.net/blog/index.php/economics/comments/jurys-inn-an-example-of-organic-growth